5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment?
5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Solve question 5 please
![In the pleasant city of Evanston there is only one bakery, Bennison’s. It has the ‘monopsony’ power to set its own wages, free from competition from any rival bakeries. However, it has to pay all of its bakers the same daily wage.
There are three bakers in town: Danny, Ella and Chet. The bakery can hire one, two or all three of them. Danny produces $6 worth of cakes per day; Chet produces $7 worth of cakes per day; Ella produces $7 worth of cakes per day. [If more than one is employed, the value of their total cake output is just the sum of their individual productivities. For example, if all three are employed they will together produce $6+$7+$7=$20 worth of cakes]. They have different preferences regarding work vs leisure. The bakery knows that Danny will work for $2 per day, while Chet is happy to work for $3 per day and Ella is only willing to work for $5 per day.
Bennison’s needs to decide which bakers to hire in order to maximize profits. Assume that, when indifferent between hiring plans, the bakery chooses the one that involves the most hiring. For example, if it is indifferent between hiring one and hiring two bakers, it will choose the latter option.
1. How much profit per day will the bakery make if it employs only Danny?
2. How much profit per day will the bakery make if it employs only Ella?
3. How much profit per day will the bakery make if it hires both Chet and Ella?
4. Which combination of bakers should Bennison’s hire if it wants to maximize profits?
(i) Danny
(ii) Chet
(iii) Ella
(iv) Danny and Chet
(v) Danny and Ella
(vi) Chet and Ella
(vii) Danny, Chet and Ella
5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fef160660-a18a-490a-a4dc-19d7272f6d57%2F402a9925-f79a-4cbc-be22-836e7add7739%2Fk8s74z_processed.png&w=3840&q=75)
Transcribed Image Text:In the pleasant city of Evanston there is only one bakery, Bennison’s. It has the ‘monopsony’ power to set its own wages, free from competition from any rival bakeries. However, it has to pay all of its bakers the same daily wage.
There are three bakers in town: Danny, Ella and Chet. The bakery can hire one, two or all three of them. Danny produces $6 worth of cakes per day; Chet produces $7 worth of cakes per day; Ella produces $7 worth of cakes per day. [If more than one is employed, the value of their total cake output is just the sum of their individual productivities. For example, if all three are employed they will together produce $6+$7+$7=$20 worth of cakes]. They have different preferences regarding work vs leisure. The bakery knows that Danny will work for $2 per day, while Chet is happy to work for $3 per day and Ella is only willing to work for $5 per day.
Bennison’s needs to decide which bakers to hire in order to maximize profits. Assume that, when indifferent between hiring plans, the bakery chooses the one that involves the most hiring. For example, if it is indifferent between hiring one and hiring two bakers, it will choose the latter option.
1. How much profit per day will the bakery make if it employs only Danny?
2. How much profit per day will the bakery make if it employs only Ella?
3. How much profit per day will the bakery make if it hires both Chet and Ella?
4. Which combination of bakers should Bennison’s hire if it wants to maximize profits?
(i) Danny
(ii) Chet
(iii) Ella
(iv) Danny and Chet
(v) Danny and Ella
(vi) Chet and Ella
(vii) Danny, Chet and Ella
5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment?
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