### Exploring Marginal Productivity

1. Suppose a firm can produce as in the table below and can hire Input A at \$5.00 per unit. If the firm can sell output for \$1 each, what numbers belong in the Marginal Revenue Product column?
 Input A Marginal Product Marginal Revenue Product Marginal Resource Cost First 10 \$ \$5 Second 8 \$ \$5 Third 6 \$ \$5 Fourth 4 \$ \$5 Fifth 2 \$ \$5 This firm will maximize profits when it hires ?? 1 2 3 4 5 units of input A. If the price of the input increases from \$5.00 to \$7.00, the profit maximizing amount of input would be ?? 1 2 3 4 5

2. In the past century both population and wages have risen. How can this be explained in terms of a graph showing wages depending on marginal product?

3. In the 1970s and 1980s there was considerable discussion of something called comparable worth. If you search the Internet, you can find a variety of information and viewpoints on this topic. What was the basic idea of comparable worth? Very few economists had good things to say about comparable worth. Why would economists be hostile to this idea?

4. Economics can be perverse. It often suggests that government efforts to help people are ineffective.

Suppose that the government passes a law that forces businesses in a particular industry to make their workplace safer. Further, suppose that the effect of the law is to actually make the workplace safer. Will the workers be better off? Perhaps not.

If people recognized that this particular type of work was risky, would they have taken that risk into account? Suppose there are two jobs that are almost identical. The only difference is that one is more dangerous, with a greater chance that a person will be injured on the job. Will these two jobs pay the same amount?

The idea of Compensating Differentials says that when people realize that a job is risky or unpleasant, they will take that risk or unpleasantness into consideration so that in equilibrium the riskier or more unpleasant job must pay a premium. Roofers work under extremely unpleasant conditions. What should we expect about their pay? Many forms of construction work have seasonal interruptions or are at the mercy of weather. What should this do to the pay? Many people think working in a national park is fun. What should this do to the pay of national park rangers? Most people prefer day shifts to night shifts. What should we expect about pay for night work?

What would you expect the long run effect of the effective safety regulation to be on the wages in the affected industry?

Suppose that a sociologist finds that unpleasant jobs have low pay. Has he shown that compensating differentials are a figment of the economist's imagination?

5. Economists sometimes say that some income is in the form of "psychic income." Having a good boss or a stress-free job gives one "psychic income." Search for the term on the internet. How is psychic income related to compensating wage differentials?