Consider the following daily production for Pleasanton\'s three different coffee

Question

Consider the following daily production for Pleasanton's three different coffee shops. Each cup of coffee sells for $1.

a.Suppose you are an influential mayor who lieks to plan the economy. There are 8 workers available and your goal is to maximize total coffee production. How many workers should you assign to each coffee shop? Hint: focus on marginal product.

b. Suppose you are a mayor who believes decentralized labor markets can achieve optimal outcomes. Again, there are 8 eager workers (supply of labor is fixed at 8). Find the equilibrium wage; how much coffee will be produced? How does this compare to the previous answer?

Shop #1 Shop #2 Shop #3 Workers Total Product Marginal Product Total Product Marginal Product Total Product Marginal Product 0 0 - 0 - 0 - 1 100 100 20 20 40 40 2 130 30 40 20 70 30 3 140 10 60 20 100 30 4 140 0 80 20 110 10

Explanation / Answer

Ans.

2 to first

3 to secound

3 to third

This arrangement will maximize sum of marginal products and thus overall output

2 The equilbrium wage will be 20 and output will again be 8.Thus is because wage is equalized with value of marginal product by employers

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