Short answer questions - Coursework Example

1. 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 function is as the table above shows. How many workers should Karen hire to reach the profit-maximizing level of output? Explain why she should hire that many workers. (5 Points) With one worker, Karen would make 15 stethoscopes ($150), but pay $100 in wages, giving a profit margin of $50.

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:($10 x quantity of output) - ($100 x number of workers) = $profit2. 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) a-Karen can now reevaluate if the number of workers within her company are at the profit-maximizing level now that there are different skill sets involved.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 in this case a higher wage would encourage workers to join Karens firm.3. Is it fair for some people to earn huge economic rents? Should those rents be taxed away? (5 Points) Economic rent is essentially any excess financial gain for a service, labor or goods above what an individual would have taken as a minimum for the service, labor or goods (Baumol, 2011).

Many people, for example, would work for a minimum wage, based upon their own personal concept of what they can deliver to an employer, and this differs from person to person. The concept that some people may earn huge economic rents is a contentious one, but essentially it fits into a capitalist economic theory concerned with earning as much as possible. Views on these rents being taxed away will depend on personal opinion of the economic market (McEachern, 2011).4. Are unions successful at winning higher wages?

What are some of the arguments for and against unions? (5 Points) One of the main functions of unions is to achieve a mark-up on wages for those who are members of the trade union. In many cases, this has been successful, for example in the 2008 British rail employee strike, and this could be said to be the main argument for trade unions; they can be effective at getting what they set out to achieve. One of the main arguments against trade or labor unions is that they can be said to benefit insiders only, often to the detriment of outsiders, shareholders and customers.

This is not only negative for the business or employer, but is essentially against the fairness which the trade union ethos sets out to achieve. Obviously another main benefit of trade or labor unions is that they can be useful in helping employees tackle what can be an intimidating employer, and allowing members to contact someone knowledgeable for advice (McEachern, 2011).5. Look at the discussion board. Either respond critically (for, against, or comment) on at least one discussion or start a new discussion based on a current event.

To get full credit, you must use economic terms and concepts used in this class and apply them to the current event. Be sure to use appropriate APA citations as necessary. Paste a copy of your discussion here. (5 Points) No access to discussion board.ReferencesBaumol, W. J., & Blinder, A. S. (2011). Economics: Principles and Policy. Cengage Learning.McEachern, W. A. (2011). Economics: A Contemporary Introduction. Cengage Learning.