Q = 50L + 6L^2 – 0.5L^3
Where Q = Quantity of output per week
L = Labor (number of workers)
^ exponential power. L^2 implies L square
Since all the necessary computations for the problem are available, all you need to do is to include only the relevant and necessary portion of the computations provided in my blackboard for this problem in answering the following questions:
1. Assume that each worker is paid $10 per hour and works a 40-hour week. How many workers should the firm hire if the price of the output is $10?
2. Suppose the price of the output falls to $7.50. What do you think be the short run impact on the firm’s production? How about the long run-impact?
3. Henry Ford, the founder of Ford Motor Company offered in 1914 $5 workday, which was about twice the going wage. What is the rationale behind Ford’s high-wage policy to the marginal productivity theory of employment discussed in the text book? Ford called “the $5-a-day wage” one of the finest cost-cutting moves.
Compare and contract the logics behind the above hiring polices in detail.
You many need to do some research in this question. I would like to see how you integrate all the information you gathered into coherent theory in your response to the question.
Hint: Please discuss and incorporate the issues of “adverse selection” due to “asymmetry of information” prior to hiring and of “moral hazard” after hiring in your answer and explain in detail how the above these issues (asymmetry of information, adverse selection, and moral hazard) were dealt with in Ford’s high wage policy.
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