Workers are mobile between cities. The utility function depends on the wage is u(w) = w¹/2 In isolated firms, the wage is $144, but the cost of switching is $44. Expected Utility 12 11 ✓ 10 180 $100 $121 $144 s= switch cost $44 w=$144 r is the probability of keeping the job Expected utility is: E(U)= (r) x u(w) + (1-r) x u(w-s) For that reason, the worker has a -gamble- between earning $144 if he keeps his/her/their job or earning (144-44) $100 if they lose their job. However, in the cluster, the cost of switching is zero. Therefore, the cluster firm can offer $121 instead of $144. Suppose the switching cost for the isolated site increases to $80. What new wage can the cluster firm offer on this new equilibrium? $

Workers are mobile between cities. The utility function depends on the wage is u(w) = w¹/2 In isolated firms, the wage is $144, but the cost of switching is $44. Expected Utility 12 11 ✓ 10 180 $100 $121 $144 s= switch cost $44 w=$144 r is the probability of keeping the job Expected utility is: E(U)= (r) x u(w) + (1-r) x u(w-s) For that reason, the worker has a -gamble- between earning $144 if he keeps his/her/their job or earning (144-44) $100 if they lose their job. However, in the cluster, the cost of switching is zero. Therefore, the cluster firm can offer $121 instead of $144. Suppose the switching cost for the isolated site increases to $80. What new wage can the cluster firm offer on this new equilibrium? $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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