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Short answer questions - Coursework Example

Summary
Karen sells stethoscopes to hospitals. She sells any and all stethoscopes she produces at the price of \$10. She can hire as much labor as she wants at the wage rate of \$100 per day per worker (wage taker). In the short run, the only variable cost is labor. The production…

Extract of sampleShort answer questions

Download file to see previous pages... With two workers, Karen would make 40 stethoscopes (\$400), but pay \$200 in wages, giving a profit margin of \$200. With three workers, Karen would make 55 stethoscopes (\$550), but pay \$300 in wages , giving a profit margin of \$250. With four workers, Karen would make 65 stethoscopes (\$650), but pay \$400 in wages, again giving a profit margin of \$250. With five workers, Karen would make 70 stethoscopes (\$700), but pay \$500 in wages, giving a profit margin of \$200. With six workers, Karen would make 73 stethoscopes (\$730), and give \$600 in wages, meaning the profit margin is only \$130, and with seven the profit margin is only \$40. Taking all of this into account, it would seem that Karen should hire 4 or 5 workers, as these options both give a \$250 profit margin and this gives the profit-maximizing level of output. This can be found using the formula:
2. Given the information from question 1, now say that the workers whom Karen hires get trained in new technology and learn new skills. This causes them to become more productive. Karen’s firm is the only firm to use this technology, and training does not improve the productivity of workers in firms outside of Karen’s firm. a) Will this change the quantity of workers whom Karen hires? Explain your answer. b) Will this change the wage rate of the workers in Karen’s firm? Explain your answer. (5 points)
b- Different skill levels often equate to a difference in pay, and in this case Karen has hired workers trained in new technology with skills that cannot be found outside her own firm. The difference in pay rates for skilled workers can be seen as a compensation for aquiring skills (which may mean the worker has not been earning for some time) or for simply going through the lengthy and sometimes difficult process of aquiring these skills (Baumol, 2011). Additionally, as this technology is not available at other firms, workers need to have an incentive to work for Karen and undergo the relevant training, and ...Download file to see next pagesRead More
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