Question

1. Information: Suppose the firm has 500 employees each working a standard workweek of 40 hours. The typical worker earns a real wage of 10 per hour and receives another 200 in weekly benefits and training, 150 of which are quasi-fixed costs to the firm.

   The marginal expense an employer faces when increasing its average workweek by an hour (ME_H) is approximately the sum of wage and variable benefit costs (on a per-hour basis) multiplied by he number of employees. Assuming no overtime wage premium, an approximate value for ME_H would be

   		11.25
   		60
   		5,625
   		30,000

10 points   

QUESTION 2

1. Suppose the firm has 500 employees each working a standard workweek of 40 hours. The typical worker earns a real wage of 10 per hour and receives another 200 in weekly benefits and training, 150 of which are quasi-fixed costs to the firm.Suppose the marginal product of an additional worker is 50 and the marginal product associatedwith expanding the workweek by 1 hour is 625. Using the ME_H and ME_M values computed in Questions 6 and 7, employ the rule for cost minimization to find the firm’s optimal adjustment of its employment/hours mix.

   		Increase M and decrease H.
   		Increase H and decrease M
   		Increase both H and M.
   		M and H should not change.

10 points   

QUESTION 3

1. Consider again the law that would require employers to provide the same package of nonwage benefits offered to full-time employees to part-time employees on a prorated basis. (For employees working 25 percent of the normal workweek, employers would pay for 25 percent of the benefit package offered to full-time employees, and so on.) Also, assume most part-time workers do not currently receive benefits. Holding output and capital constant, what effect would there be on the firm’s mix of part-time and full-time workers?

   		Full-time workers would increase and part-time workers would decrease since the marginal cost of part-time workers is now higher.
   		Full-time workers would decrease and part-time workers would decrease since the marginal cost of part-time workers is now higher.
   		There would be no change in the mix of part-time and full-time workers since part-time workers are still cheaper than full-time workers.
   		Part-time employment would actually increase since more people would now want to work part-time.

10 points   

QUESTION 4

1. Which of the following is not a quasi-fixed cost?

   		The hourly wage the firm pays.
   		Costs associated with a defined benefit pension .
   		Costs associated with a defined contribution pension.
   		Employer contributions to Social Security.

Answer 1

Question 1

The answer is 5625.

MEM - the marginal expense of hiring an added worker

MEH - the marginal expense of hiring current workers for an extra hour

Variable benefits per hour = (200-150)/40 = 50/40

MEH = (wage + variable benefits per hour) × number of workers = [10 + (50/40)] 500 = 5,625.