Practice_Midterm2f_2009

Practice_Midterm2f_2009 - Midterm 2 Economics 152...

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Midterm 2 Economics 152 Professor: Philip Babcock Nov. 17, 2009 Name _________________________ Student ID _____________________ There are 5 written problems on this exam, worth a total of 100 points. Please write neatly. If you place an answer to the question in an odd place, or on the back of the page, please indicate clearly. Points will be deducted for any incorrect reasoning on a question, even if the correct answer to that question also appears. Please show your work. You have 75 minutes For grading: Clicking In: __10 ___/10 1. _______/20 2. _______/20 3. _______/15 4. _______/20 5. _______/15 Total _______/100 1
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1. Short answers (20 points) a. You and 3 friends go to Starbucks. Normally, you would order a plain coffee for $1. But you are splitting the bill evenly with your friends. How much extra does it cost you, personally, to buy your favorite drink (a vente no-foam, half-caf caramel macchiato that costs $4) than to buy your usual coffee? What principle does this illustrate? b. Give one reason paying workers through tournaments might be preferable to paying them piece rates. c. Give one reason paying workers piece rates might be preferable to paying them in tournaments. 2
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d. Briefly answer the following two questions from the readings and videos: i) In one of the class videos, a worker at a fast-food franchise was “shirking” instead of being productive. Specifically, what was the worker doing (on company time)? ii) Name a company mentioned in the readings that used the “superstar” system for recruiting and promoting personnel. 3
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2. Piece Rates (20 points) A firm sells snow globes and wishes to establish a wage w= a+bE, where E is worker effort and a and b are to be chosen by the firm. The worker maximizes utility given by U= w-4E 2 (which is to say the worker’s cost of effort is 4E 2 .) Each unit of effort, E, generates 1 snow globe which can be sold for $32. Assume the
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This note was uploaded on 12/07/2010 for the course ECON 152 taught by Professor Babcock,p during the Fall '08 term at UCSB.

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Practice_Midterm2f_2009 - Midterm 2 Economics 152...

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