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Talk:Economics (view source)

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Q&A on Week 11

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== Questions on Week 11 ==

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Question from a student:

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In the Honors only example in [[Economics_Lecture_Eleven]], the profit is the same for three and four employees because for the fourth employee,

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(P x MP)=W.

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With three employees, revenue is (20+18+16) x $5=$270. Cost is $70x3=$210. So profit with three employees is $60.

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For four employees, revenue is (20+18+16+14)x$5=$340. Cost is $70x4=$280. So profit is once again $60.

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Wouldn't the company prefer to hire three employees instead of four? The fourth employee increases output, but not profit. This is bad for the seller because price decreases when supply increases."

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Assuming your math is correct above, the price would not decrease when the supply increases '''unless this is a monopoly'''. Instead, this is a '''monopsony'''. So the company would be indifferent between three or four employees, but probably prefers four employees because he is helping more people that way and has greater protection in case an employee quits or becomes sick.--[[User:Aschlafly|Aschlafly]] 12:37, 30 April 2007 (EDT)

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== Questions for Midterm Exam ==

Aschlafly

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