Suppose that the production function for a particular firm is q=w´E,
where q is output, w is the wage and E is employment. If this firm hires 100
workers:
what is the marginal product of the wage (MPW)?
what is the average product of the wage (APW)?
what is the efficiency wage?
what level of output insures that the elasticity of the wage equal to
1?
Suppose that there is an increase in the demand for the firms output
such that E increases. What happens to the efficiency wage?
Educators have recently proposed an alternative system for students who
are in K-12 (i.e., kindergarten to the 12th grade). Instead of having explicit
grades, students study for a certificate of mastery test in a particular subject,
which is given periodically through-out the school year. If the student passes
the test, he or she moves on to the next level; if the student fails the test
he or she continues studying the material until the test is past. A person
graduates from high-school when he or she has passed 12 successively more
difficult certificate of mastery tests in a subject matter for all required
subjects.
Explain the rationale behind the proposed system. Specifically, what
form of compensation scheme does this proposed system resemble?
If students are given a choice between schools that offer the proposed
system and those that offer the traditional K-12 type education, what
kind of students would opt for the new system?
What are the potential advantages and disadvantages with using the proposed
educational scheme?
Suppose test scores are measured on a relative, rather than an absolute
basis (e.g., only the top 10 percent pass the test). What form of compensation
scheme does this proposed system resemble? Explain.
What are the advantages and disadvantages of the scheme proposed in
(D)?
A famous offensive lineman in professional football, after being fined for
coming to training camp overweight, complained to the press about his contract.
He was upset that his compensation was based on indirect measures of performance,
like weight, while the contract of their notoriously cubby quarterback only
involved his performance during the season. Explain the rationale for the
professional football teams compensation package and how it might lead to
the observed low pay of linemen relative to quarterbacks.
In a symphony orchestra, the first-chair of an instrument (e.g., the lead
violinist) is generally paid significantly more than the second-chair, and
so on. What type of compensation scheme is this and why might an orchestra
choose such a scheme? Specifically, what attributes of a symphony orchestra
make this compensation scheme preferable to the alternatives.
In chapter 2, you were introduced to two types of real estate firms. First,
a standard real estate firm that paid an individual a flat salary plus a share
of the realtor's fee that is collect by the firm when a house is sold. Second,
a firm called TREX that required the realtor to pay an annual fee up front
to the firm in exchange for the right to collect the entire realtor's fee.
What is the upfront fee in the context of this chapter?
What is likely to be the distribution of talent between the standard
real estate firm and the TREX-type firms if realtors are able to choose
for whom to work? Explain.
Given your answer in (B), why do we continue to observe both types of
firms in the market?
