Chapter 7, Problem 23TPS

Sub part (a):

To determine

The difference in tip earnings when the server goes from mean to nice.

Answer to Problem 23TPS

$60.

Explanation of Solution

When the server is mean, he receives tip earnings of $40 per shift. When the server is nice, he is able to earn the tip of $100 per shift. Thus, when the server moves from being rude to being nice, the change in the tip earnings can be calculated as follows:

$\begin{array}{c}\text{Change in the tip earnings}={\text{Tip earnings}}_{\text{being nice}}-{\text{Tip earnings}}_{\text{being mean}}\\ =100-40\\ =60\end{array}$

Thus, the difference between being nice and being mean is $60. Therefore, the server will earn additional $60 when he becomes nice rather than being mean.

Economics Concept Introduction

Concept introduction:

Wages and Salaries: Wages and salaries are the main two means through which the people are paid. The wages are paid on the hourly basis for a day whereas the salaries are paid monthly.

Sub part (b):

To determine

The average tip earned when all the servers are mean.

Answer to Problem 23TPS

$40.

Explanation of Solution

When the server is mean, he receives the tip earnings of $40 per shift. When the server is nice, he is able to earn the tip of $100 per shift. Thus, when all the workers are mean, each will earn only $40 per shift. This means that the average tip earned by the server will be the same, which is $40 per shift. When all the servers are nice, each will earn $100 per shift as a tip. Therefore, when all servers are nice, each will earn  $100 per shift.

Economics Concept Introduction

Concept introduction:

Wages and Salaries: Wages and salaries are the main two means through which the people are paid. The wages are paid on the hourly basis for a day whereas the salaries are paid monthly.

Sub part (c):

To determine

The benefit from being nice from being mean.

Explanation of Solution

When the server is mean, he receives the tip earnings of $40 per shift. When the server is nice, he is able to earn the tip of $100 per shift. When some of the workers are mean and some are nice, there will be changes in the mean average and nice average. This can be calculated as follows:

Mean (Omitting the individual)	Nice (Omitting the individual)	Total tips if the individual is mean	Total tips if the individual is Nice	Mean average	Nice average	Benefit of the individual from being nice
0	9	$\begin{array}{l}\left(0\times 40\right)+\left(9\times 100\right)+40\\ =140\end{array}$	$\begin{array}{l}10\times 100\\ =1000\end{array}$	$\begin{array}{l}\frac{940}{10}\\ =94\end{array}$	$\begin{array}{l}\frac{1000}{10}\\ =100\end{array}$	$\begin{array}{l}100-94\\ =6\end{array}$
5	4	$\begin{array}{l}\left(5\times 40\right)+\left(4\times 100\right)+40\\ =640\end{array}$	$\begin{array}{l}\left(5\times 40\right)+\left(5\times 100\right)\\ =700\end{array}$	$\begin{array}{l}\frac{640}{10}\\ =64\end{array}$	$\begin{array}{l}\frac{700}{10}\\ =70\end{array}$	$\begin{array}{l}70-64\\ =6\end{array}$
9	0	$\begin{array}{l}\left(9\times 40\right)+\left(0\times 100\right)+40\\ =400\end{array}$	$\begin{array}{l}\left(9\times 40\right)+100\\ =460\end{array}$	$\begin{array}{l}\frac{400}{10}\\ =40\end{array}$	$\begin{array}{l}\frac{460}{10}\\ =46\end{array}$	$\begin{array}{l}46-40\\ =6\end{array}$

From the above table, it can be identified that the benefit of an individual from being nice rather than being mean is $6. Thus, in pool system, the benefit for the server is only 1/10th of the benefit under normal system at any combination.

Economics Concept Introduction

Concept introduction:

Wages and Salaries: Wages and salaries are the main two means through which the people are paid. The wages are paid on the hourly basis for a day whereas the salaries are paid monthly.

Sub part (d):

To determine

When the servers like to be more nice.

Explanation of Solution

When the server is mean, he receives the tip earnings of $40 per shift. When the server is nice, he is able to earn the tip of $100 per shift. Thus, the benefit by being nice is $60 under per shift system. When the pool system is operating, the worker will benefit only with $6.

Therefore, the worker will have more incentive to be nice under the system where they can keep their own tip. When the restaurants want to keep their customers happy, the servers should be nice. Thus, the restaurant would follow the personal tip policy rather than the pool system.

Economics Concept Introduction

Concept introduction:

Wages and Salaries: Wages and Salaries are the main two means through which the people are paid. The wages are paid on the hourly basis for a day whereas the salaries are paid monthly.