Labour Economics Essay

1694 WordsSep 24, 20147 Pages
18-inch deck push mover takes 2 hours 60-inch deck ride-on mover uses 0.5 hour. Each labour will work 8 Hours x 5 days = 40 hours a week. Each labourer earns $5 per hour. 1) (i) Workers to hire for hand mowers: 400 lawns x 2 hours = 800 hours 800 hours divided by 40 hours a week per labour = 20 workers 20 workers will need 20 mowers to complete the work. (ii) Workers to hire for ride-on mowers: 400 lawns x 0.5 hour = 200 hours 200 hours divided by 40 hours a week per labour = 5 workers 5 workers will require 5 mowers to complete the work. (iii) Cost of hand mowers = $250 (20) + $5 (20) (40) = $5000 + $4000 = $9000 Cost of ride-on mowers = $1800 (5) + $5 (5) (40) = $9000 + $1000 = $10,000 Since the cost of hand mowers are lower than ride-on mowers, Marge will rent hand mowers and employ 20 workers for the job. The profit she’ll earn amounts to $20,000 - $9000 = $11,000 as compared to the $10,000 that she’ll earn if she uses the ride-on mowers. (iv) 20% payroll tax (paid by employers) will cause cost of wages to increase by a multiplication of 1.2. 20% subsidy on rental cost of capital will reduce cost of capital by a multiplication of 0.8. Cost of hand mowers = $250 (0.8) (20) + $5 (1.2) (20) (40) = $4000 + $4800 = $8800 Cost of ride-on mowers = $1800 (0.8) (5) + $5 (1.2) (5) (40) = $7200 + $1200 = $8400 Since the cost of ride-on mowers is now less than hand mowers, Marge will rent ride-on mowers and employ 5 workers for the job. The profit she’ll earn amounts to $20,000 - $8400 = $11,600 as compared to the $11,200 that she’ll earn if she uses the hand mowers. 2) (i) Efficiency wage theory argues that in order to increase worker’s productivity and efficiency, managers have incentive to pay wages that are above the equilibrium level. The

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