n the pleasant city of Evanston there is only one butcher shop, Smithfield. It has the 'monopsony' power to et its own wages, free from competition from any rivals. However, it has to pay all of its employees the same aily wage. There are three skilled butchers in town: Frank, Pat and Terry. Smithfield can hire one, two or all three of hem. Frank carves $13 worth of meat per day; Pat produces $15 worth of output per day; Terry chops $9 worth of meat per day. [If more than one is employed, the value of their total output is just the sum of their ndividual productivities. For example, if all three are employed they will together produce $13+$15+$9=$3 worth of meat]. They have different preferences regarding work vs leisure. The butcher shop knows that Fran will work for $10 per day, while Pat is happy to work for $4 per day and Terry is only willing to work for $7 er day. mithfield needs to decide which butchers to hire in order to maximise profits. Assume that, when indifferen etween hiring plans, the firm chooses the one that involves the most hiring. For example, if it is indifferent etween hiring one and hiring two butchers, it will choose the latter option. How much profit per day will the butcher shop make if it employs only Frank? How much profit per day will the butcher shop make if it employs only Terry? . How much profit per day will the butcher shop make if it hires both Frank and Pat? Which combination of butchers should Smithfield hire if it wants to maximise profits? ) Frank ii) Pat ii) Terry iv) Frank and Pat w) Frank and Terry wi) Pat and Terry vii) Frank, Pat and Terry . You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowe. alue of the minimum wage that will lead to a rise in employment?
n the pleasant city of Evanston there is only one butcher shop, Smithfield. It has the 'monopsony' power to et its own wages, free from competition from any rivals. However, it has to pay all of its employees the same aily wage. There are three skilled butchers in town: Frank, Pat and Terry. Smithfield can hire one, two or all three of hem. Frank carves $13 worth of meat per day; Pat produces $15 worth of output per day; Terry chops $9 worth of meat per day. [If more than one is employed, the value of their total output is just the sum of their ndividual productivities. For example, if all three are employed they will together produce $13+$15+$9=$3 worth of meat]. They have different preferences regarding work vs leisure. The butcher shop knows that Fran will work for $10 per day, while Pat is happy to work for $4 per day and Terry is only willing to work for $7 er day. mithfield needs to decide which butchers to hire in order to maximise profits. Assume that, when indifferen etween hiring plans, the firm chooses the one that involves the most hiring. For example, if it is indifferent etween hiring one and hiring two butchers, it will choose the latter option. How much profit per day will the butcher shop make if it employs only Frank? How much profit per day will the butcher shop make if it employs only Terry? . How much profit per day will the butcher shop make if it hires both Frank and Pat? Which combination of butchers should Smithfield hire if it wants to maximise profits? ) Frank ii) Pat ii) Terry iv) Frank and Pat w) Frank and Terry wi) Pat and Terry vii) Frank, Pat and Terry . You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowe. alue 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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Transcribed Image Text:**Case Study: Monopoly Butcher Shop in Evanston**
In the pleasant city of Evanston, there is only one butcher shop, Smithfield. It has the ‘monopsony’ power to set its own wages, free from competition from any rivals. However, it has to pay all of its employees the same daily wage.
**Butcher Profiles:**
- **Frank**: Carves $13 worth of meat per day.
- **Pat**: Produces $15 worth of output per day.
- **Terry**: Chops $9 worth of meat per day.
If more than one is employed, their total output is the sum of individual productivities (e.g., employing all three produces $13 + $15 + $9 = $37 worth of meat).
**Wage Preferences:**
- Frank will work for $10 per day.
- Pat is happy to work for $4 per day.
- Terry is only willing to work for $7 per day.
**Decision Making for Profit Maximization:**
Smithfield needs to decide which butchers to hire to maximize profits. When indifferent between hiring plans, the firm chooses more employees.
**Questions:**
1. *How much profit per day will the butcher shop make if it employs only Frank?*
2. *How much profit per day will the butcher shop make if it employs only Terry?*
3. *How much profit per day will the butcher shop make if it hires both Frank and Pat?*
4. *Which combination of butchers should Smithfield hire if it wants to maximize profits?*
*Options:*
(i) Frank
(ii) Pat
(iii) Terry
(iv) Frank and Pat
(v) Frank and Terry
(vi) Pat and Terry
(vii) Frank, Pat, and Terry
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?*
**Analysis and Economic Impact:**
The solution involves calculating profit by subtracting the total wages from the meat value produced for each hiring scenario.
**Considerations:**
- Analyze the profitability for each scenario.
- Determine the impact of a minimum wage policy on employment levels.
- Evaluate which hiring plan yields maximum profit for Smithfield, while considering local economic conditions and workforce welfare.
Transcribed Image Text:6. You, as mayor, introduce a minimum wage equal to the answer to the preceding question. What is the actual wage paid by Smithfield as a result?
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