Question 1 In discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it's to the advantage of both workers and firms that they be able to draw on a single labor pool. But it might happen that both firms want to expand or contract at the same time. Does this constitute an argument against geographical concentration? To answer this question, imagine that there are two companies that both use the same kind of specialized labor, say, two film studios that make use of experts in computer animation. Suppose that there are 450 workers with this special skill. Now compare two different scenarios: In scenario 1, both firms and all 450 workers are in the same city, and each firm is able to hire 225 workers. In scenario 2, the two firms, each with 225 workers, are in two different cities. Now suppose that both firms experience an increase in demand for their products and as a result want to hire up to 255 workers. a) b) c) In the first scenario (when both firms and all workers are located in the same city), will the firms face a surplus or shortage of workers? How many? In the second scenario (when each firm is in a different city with 225 workers), will the firms face a surplus or shortage of workers? How many? Is there any advantage or disadvantage in scenario 1 relative to scenario 2 when both firms are expanding? Now, suppose firm 1 experiences an increase in demand for its product as a result it wants to hire up to 255 workers but firm 2 experiences a decrease in demand as a result it wants to lay off 30 workers. d) e) f) In the first scenario (when both firms and all workers are located in the same city), will the firms face a surplus or shortage of workers? How many? In the second scenario (when each firm is in a different city with 225 workers), will the firms face a surplus or shortage of workers? How many? Is there any advantage or disadvantage in scenario 1 relative to scenario 2 when one firm is expanding and the other firm is contracting?
Question 1 In discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it's to the advantage of both workers and firms that they be able to draw on a single labor pool. But it might happen that both firms want to expand or contract at the same time. Does this constitute an argument against geographical concentration? To answer this question, imagine that there are two companies that both use the same kind of specialized labor, say, two film studios that make use of experts in computer animation. Suppose that there are 450 workers with this special skill. Now compare two different scenarios: In scenario 1, both firms and all 450 workers are in the same city, and each firm is able to hire 225 workers. In scenario 2, the two firms, each with 225 workers, are in two different cities. Now suppose that both firms experience an increase in demand for their products and as a result want to hire up to 255 workers. a) b) c) In the first scenario (when both firms and all workers are located in the same city), will the firms face a surplus or shortage of workers? How many? In the second scenario (when each firm is in a different city with 225 workers), will the firms face a surplus or shortage of workers? How many? Is there any advantage or disadvantage in scenario 1 relative to scenario 2 when both firms are expanding? Now, suppose firm 1 experiences an increase in demand for its product as a result it wants to hire up to 255 workers but firm 2 experiences a decrease in demand as a result it wants to lay off 30 workers. d) e) f) In the first scenario (when both firms and all workers are located in the same city), will the firms face a surplus or shortage of workers? How many? In the second scenario (when each firm is in a different city with 225 workers), will the firms face a surplus or shortage of workers? How many? Is there any advantage or disadvantage in scenario 1 relative to scenario 2 when one firm is expanding and the other firm is contracting?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 1
In
discussion of labor market pooling, we stressed the advantages of having two firms in
the same location: If one firm is expanding while the other is contracting, it's to the advantage
of both workers and firms that they be able to draw on a single labor pool. But it might happen
that both firms want to expand or contract at the same time. Does this constitute an argument
against geographical concentration?
To answer this question, imagine that there are two companies that both use the same kind of
specialized labor, say, two film studios that make use of experts in computer animation.
Suppose that there are 450 workers with this special skill.
Now compare two different scenarios: In scenario 1, both firms and all 450 workers are in the
same city, and each firm is able to hire 225 workers. In scenario 2, the two firms, each with
225 workers, are in two different cities.
Now suppose that both firms experience an increase in demand for their products and as a result
want to hire up to 255 workers.
a)
b)
c)
In the first scenario (when both firms and all workers are located in the same
city), will the firms face a surplus or shortage of workers? How many?
In the second scenario (when each firm is in a different city with 225 workers),
will the firms face a surplus or shortage of workers? How many?
Is there any advantage or disadvantage in scenario 1 relative to scenario 2
when both firms are expanding?
Now, suppose firm 1 experiences an increase in demand for its product as a result it wants to
hire up to 255 workers but firm 2 experiences a decrease in demand as a result it wants to lay
off 30 workers.
d)
e)
f)
In the first scenario (when both firms and all workers are located in the same
city), will the firms face a surplus or shortage of workers? How many?
In the second scenario (when each firm is in a different city with 225 workers),
will the firms face a surplus or shortage of workers? How many?
Is there any advantage or disadvantage in scenario 1 relative to scenario 2
when one firm is expanding and the other firm is contracting?
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