(8 points) Consider the following labor market scenario. The productivity of a w

Question

(8 points) Consider the following labor market scenario. The productivity of a worker is 10 during period 1 in any firm that hires her. In period 1, firm A hires the worker at the market wage w1. The worker produces 10 worth of output for firm A in period 1. Firm A spends 5 in order to train the worker in period 1. The training increases the productivity of the worker during period 2 from 10 to 20 in any firm that hires her. In period 2, firm B hires the worker at the market wage w2. The worker produces 20 worth of output for firm B in period 2 (a) What is the value of w2 assuming that the labor market is competitive? (b) What is the value of wi assuming that the labor market is competitive?

Explanation / Answer

a).

Consider the given problem here the in “period2” “B” hire the worker having productivity “20” and produces output of worth “20”, => the market value of the output is “20”. So, as the labor market is competitive, => the wage rate must be equal to the value of output that they produce, => here the wage rate must be equal to “20”, => “W2=20”.

b).

Now, in “period 1” “A” hire the worker having productivity “10” and produces output of worth “10”, => the market value of the output is “10”. Now, “A” spend “5” in order to train the worker in “Period 1”. So, as the labor market is competitive, => the wage rate must be equal to the value of output that they produce, => here the wage rate must be equal to “10-5=5”, => “W1=5”.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.