Question

Suppose that there are two types of manager in a perfectly competitive industry—good and bad. A good manager increases the profit of a firm by €10,000.

a. If bad managers are paid €50,000 how much are good managers paid?

b. Why may it be an advantage to have a good manager?

Answer 1

a. Good managers will be paid same as bad managers i.e euro 50,000 because the industry is perfectly competitive and in perfectly competitive market salaries would be same for all the employees.

b. Yes it be an advantage to have a good manager because the firm profit will increase more by euro 10,000 than that the firm will have with a bad manager.