Microeconomics - Pricing in input markets
Microeconomics - Pricing in input markets
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A salesperson has a utility function for earnings of the form:
Utility = (wl)^1/2
where w is the hourly wage received and l is the number of hours worked in a typical day. This person is choosing between two jobs. The first promises a constant work day of 8 hours per day and an hourly wage of $50 per hour. The second offers a random workday in which he or she sometimes gets only 4 hours of work, whereas other times he or she gets 12 hours of work.
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a. if the probability of 4 hour days is 0.5 (and the probability of 12 hour days is also 0.5), how high must the hourly wage rate be on the risky job to get the person to take it?
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b. assuming that the wage for the risky job is that described in part a), will a proportional tax on daily earnings affect this person's choice of job?
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c. how would your answer to part b change if daily earnings were subject to a progressive tax rate in which the first $300 of daily earnings is not taxed and daily earnings over $300 are taxed at a rate of 50%?
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d. what proportional tax rate would yield the same tax revenue as the progressive tax, but not affect this person's choices among jobs?
Answers
Status NEW
Posted 05 Jun 2017 07:06 AM
My Price 7.00
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