1. Question 19.12

   In 2013, national income in the United States was $14,542.4 billion. In the same year, 137 million workers were employed, at an average wage, including benefits, of $64,667 per worker per year.

   1. How much compensation of employees was paid in the United States in 2013?

   2. Analyze the factor distribution of income. What percentage of national income was received in the form of compensation to employees in 2013?

   3. Suppose that a huge wave of corporate downsizing leads many terminated employees to open their own businesses. What is the effect on the factor distribution of income?

   4. Suppose the supply of labor rises due to an increase in the retirement age. What happens to the percentage of national income received in the form of compensation of employees?

2. Question 19.13

   Marty’s Frozen Yogurt has the production function per day shown in the accompanying table. The equilibrium wage rate for a worker is $80 per day. Each cup of frozen yogurt sells for $2.

   Quantity of labor (workers)	Quantity of frozen yogurt (cups)
   0	0
   1	110
   2	200
   3	270
   4	300
   5	320
   6	330

   1. Calculate the marginal product of labor for each worker and the value of the marginal product of labor per worker.

   2. How many workers should Marty employ?

3. Question 19.14

   The production function for Patty’s Pizza Parlor is given in the table in Problem 14. The price of pizza is $2, but the hourly wage rate rises from $10 to $15. Use a diagram to determine how Patty’s demand for workers responds as a result of this wage rate increase.

4. Question 19.15

   Jameel runs a driver education school. The more driving instructors he hires, the more driving lessons he can sell. But because he owns a limited number of training automobiles, each additional driving instructor adds less to Jameel’s output of driving lessons. The accompanying table shows Jameel’s production function per day. Each driving lesson can be sold at $35 per hour.

   Quantity of labor (driving instructors)	Quantity of driving lessons (hours)
   0	0
   1	8
   2	15
   3	21
   4	26
   5	30
   6	33

   Determine Jameel’s labor demand schedule (his demand schedule for driving instructors) for each of the following daily wage rates for driving instructors: $160, $180, $200, $220, $240, and $260.

5. Question 19.16

   Dale and Dana work at a self-service gas station and convenience store. Dale opens up every day, and Dana arrives later to help stock the store. They are both paid the current market wage of $9.50 per hour. But Dale feels he should be paid much more because the revenue generated from the gas pumps he turns on every morning is much higher than the revenue generated by the items that Dana stocks. Assess this argument.

6. Question 19.17

   A New York Times article observed that the wage of farmworkers in Mexico was $11 an hour but the wage of immigrant Mexican farmworkers in California was $9 an hour.

   1. Assume that the output sells for the same price in the two countries. Does this imply that the marginal product of labor of farmworkers is higher in Mexico or in California? Explain your answer, and illustrate with a diagram that shows the demand and supply curves for labor in the respective markets. In your diagram, assume that the quantity supplied of labor for any given wage rate is the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California.

   2. Now suppose that farmwork in Mexico is more arduous and more dangerous than farmwork in California. As a result, the quantity supplied of labor for any given wage rate is not the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California. How does this change your answer to part a? What concept best accounts for the difference between wage rates for Mexican farmworkers and immigrant Mexican farmworkers in California?

   3. Illustrate your answer to part b with a diagram. In this diagram, assume that the quantity of labor demanded for any given wage rate is the same for Mexican employers as it is for Californian employers.

7. Question 19.18

   Kendra is the owner of Wholesome Farms, a commercial dairy. Kendra employs labor, land, and capital. In her operations, Kendra can substitute between the amount of labor she employs and the amount of capital she employs. That is, to produce the same quantity of output she can use more labor and less capital; similarly, to produce the same quantity of output she can use less labor and more capital. Let w* represent the annual cost of labor in the market, let represent the annual cost of a unit of land in the market, and let represent the annual cost of a unit of capital in the market.

   1. Suppose that Kendra can maximize her profits by employing less labor and more capital than she is currently using but the same amount of land. What three conditions must now hold for Kendra’s operations (involving her value of the marginal product of labor, land, and capital) for this to be true?

   2. Kendra believes that she can increase her profits by renting and using more land. However, if she uses more land, she must use more of both labor and capital; if she uses less land, she can use less of both labor and capital. What three conditions must hold (involving her value of the marginal product of labor, land, and capital) for this to be true?

8. Question 19.19

   For each of the following situations in which similar workers are paid different wages, give the most likely explanation for these wage differences.

   1. Test pilots for new jet aircraft earn higher wages than airline pilots.

   2. College graduates usually have higher earnings in their first year on the job than workers without college degrees have in their first year on the job.

   3. Full professors command higher salaries than assistant professors for teaching the same class.

   4. Unionized workers are generally better paid than non-unionized workers.

9. Question 19.20

   Research consistently finds that despite nondiscrimination policies, African-American workers on average receive lower wages than White workers do. What are the possible reasons for this? Are these reasons consistent with marginal productivity theory?

10. Question 19.21

    Greta is an enthusiastic amateur gardener and spends a lot of her free time working in her yard. She also has a demanding and well-paid job as a freelance advertising consultant. Because the advertising business is going through a difficult time, the hourly consulting fee Greta can charge falls. Greta decides to spend more time gardening and less time consulting. Explain her decision in terms of income and substitution effects.

11. Question 19.22

    You are the governor’s economic policy adviser. The governor wants to put in place policies that encourage employed people to work more hours at their jobs and that encourage unemployed people to find and take jobs. Assess each of the following policies in terms of reaching that goal. Explain your reasoning in terms of income and substitution effects, and indicate when the impact of the policy may be ambiguous.

    1. The state income tax rate is lowered, which has the effect of increasing workers’ after-tax wage rate.

    2. The state income tax rate is increased, which has the effect of decreasing workers’ after-tax wage rate.

    3. The state property tax rate is increased, which reduces workers’ after-tax income.

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