Sarah has been a shift manager at Arby’s for several years. Over her time there, the owner has put her in charge of payroll and scheduling for all shifts, not just her own. Sarah feels like she isn’t being paid for the extra responsibility, and sits down with her boss to discuss a raise. Her boss has said on several occasions that Sarah is saving him $15,000 a year since he doesn’t have to hire a contractor to do payroll and scheduling. Sarah is currently making $25,000 a year and would accept a minimum raise of $5,000 a year. 

a. If Sarah assumes that her boss is being completely honest and he does not have any other alternatives, what is the range of possible outcomes (in terms of her final salary) she should expect? 

b. Suppose that in anticipation of her salary renegotiation, Sarah applied for a manager’s position at the competition across the street, where she would be perfectly happy to work, and they offered her a starting salary of $38,000. Has Sarah’s or her boss’s bargaining power changed? What is the new range of possible salaries Sarah should expect from her salary negotiation?