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In the pleasant city of Evanston there is only one butcher shop, Smithfield. It has the 'monopsony' power t set its own wages, free from competition from any rivals. However, it has to pay all of its employees the san daily wage

In the pleasant city of Evanston there is only one butcher shop, Smithfield. It has the 'monopsony' power t set its own wages, free from competition from any rivals. However, it has to pay all of its employees the san daily wage

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 31P: Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as...
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Please only answer parts four five and six 

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 result?
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 result?
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. There are three skilled butchers in town: Frank, Pat and Terry. Smithfield can hire one, two or all three of them. 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 individual productivities. For example, if all three are employed they will together produce $13+$15+$9=$37 worth of meat]. They have different preferences regarding work vs leisure. The butcher shop knows that Frank 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 per day. Smithfield needs to decide which butchers to hire in order to maximise profits. Assume that, when indifferent between hiring plans, the firm chooses the one that involves the most hiring. For example, if it is indifferent between hiring one and hiring two butchers, it will choose the latter option. 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 maximise profits? (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?
Transcribed Image Text: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. There are three skilled butchers in town: Frank, Pat and Terry. Smithfield can hire one, two or all three of them. 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 individual productivities. For example, if all three are employed they will together produce $13+$15+$9=$37 worth of meat]. They have different preferences regarding work vs leisure. The butcher shop knows that Frank 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 per day. Smithfield needs to decide which butchers to hire in order to maximise profits. Assume that, when indifferent between hiring plans, the firm chooses the one that involves the most hiring. For example, if it is indifferent between hiring one and hiring two butchers, it will choose the latter option. 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 maximise profits? (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?
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