Ch17_18Solutions

# Ch17_18Solutions - Homework 10 Chapter 17 Solutions 2 a A...

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Homework 10 Chapter 17 Solutions 2. a) A college basketball program earns profit from selling tickets and licensing its brand. If a program hires a top coach that causes the team to win more, then demand for the college basketball team’s merchandise and tickets increases, causing profits to increase. b) Suppose a college hires a top basketball coach and consequently starts winning more games resulting in higher ticket and merchandise sales. It is profitable for the college to pay the million dollar salary as long as the increase in revenue from hiring the coach equals or exceeds the million dollar salary (i.e. MRP L > w). c) (Answers may vary) Whether the coach “deserves” a million dollar contract or to be paid their MRP L is a matter of personal opinion. If the top basketball coach could receive the million dollar contract somewhere else, then it is reasonable for the college to match the salary if the coach will increase their revenues by at least his or her million dollar salary. However, since there are many coaches available to colleges, each college should look for the coach who provides the largest increase in profit from hiring the coach (i.e. the largest MRP L – w), which is not necessarily the top coach. 5. a) The marginal product of labor is the additional output resulting from hiring one more worker, and is calculated: MP L = Δ Q Δ L Total revenue is the amount a firm earns for producing Q units and selling them at a market price P: TR = P Q Marginal revenue product of labor is the additional revenue from hiring one more worker and is calculated: MRP L = Δ TR Δ L = MR MP L = P MP L The values are calculated in table 5a. The marginal revenue product of labor is graphed in figure 5a and slopes downward because each additional worker earns increases revenue by less.

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Ch17_18Solutions - Homework 10 Chapter 17 Solutions 2 a A...

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