Chapter 15 - Wage Determination

Chapter 15 - Wage Determination

DISCUSSSION QUESTIONS
1. Explain why the general level of wages is high in the United States and other industrially
advaned ountries. What is the single most important fator underlying the longrun inrease in
average realwage rates in the United States! LO1
". Why is a firm in a purely ompetitive la#or mar$et a wage ta$er! What would happen if it
deided to pay less than the going mar$et wage rate! LO2
%. Desri#e wage determination in a la#or mar$et in whih wor$ers are unorgani&ed and many
firms atively ompete for the servies of la#or. Show this situation graphially' using W1 to
indiate the e(uili#rium wage rate and Q1 to show the num#er of wor$ers hired #y the firms as a
group. Show the la#or supply urve of the individual firm' and ompare it with that of the total
mar$et. Why the differenes! )n the diagram representing the firm' identify total revenue' total
wage ost' and revenue availa#le for the payment of non-la#or resoures. LO2
PROBLES
". Complete the following la#or supply ta#le for a firm hiring la#or ompetitively*
LO2
a. Show graphially the la#or supply and marginal resoure +la#or, ost urves for this
firm. -re the urves the same or different! )f they are different' whih one is higher!
#. .lot the la#or demand data of review (uestion " in Chapter 1/ on the graph used in
part a a#ove. What are the e(uili#rium wage rate and level of employment!
%. -ssume a firm is a monopsonist that an hire its first wor$er for 01 #ut must inrease the wage
rate #y 0% to attrat eah suessive wor$er +so that the seond wor$er must #e paid 02' the third
01"' and so on,. LO!
a. Draw the firm3s la#or supply and marginal resoure ost urves. -re the urves the
same or different! )f they are different' whih one is higher!
#. 4n the same graph' plot the la#or demand data of review (uestion " in Chapter 1/.
What are the e(uili#rium wage rate and level of employment!
. Compare these answers with those you found in pro#lem ". 5y how muh does the
monoposonist redue wages #elow the ompetitive wage! 5y how muh does the
monopsonist redue employment #elow the ompetitive level!
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Chapter 15 - Wage Determination
5. Suppose that a ar dealership wishes to see if effiieny wages will help improve its
salespeople3s produtivity. Currently' eah salesperson sells an average of one ar per day while
#eing paid 0"6 per hour for an eighthour day. LO"
a. What is the urrent la#or ost per ar sold!
#. Suppose that when the dealer raises the prie of la#or to 0%6 per hour the average
num#er of ars sold #y a salesperson inreases to two per day. What is now the la#or ost
per ar sold! 5y how muh is it higher or lower than it was #efore! 7as the effiieny of
la#or expenditures #y the firm +ars sold per dollar of wages paid to salespeople,
inreased or dereased!
. Suppose that if the wage is raised a seond time to 0/6 per hour the num#er of ars
sold rises to an average of ".5 per day. What is now the la#or ost per ar sold!
d. )f the firm3s goal is to maximi&e the effiieny of its la#or expenditures' whih of the
three hourly salary rates should it use* 0"6 per hour' 0%6 per hour' or 0/6 per hour!
e. 5y ontrast' whih salary maximi&es the produtivity of the ar dealer3s wor$ers +ars
sold per wor$er per day,!
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