Question
A bakery has the 'monopsony' power to set its own wages, free from competition from any rival bakeries. However, it has to pay all of
A bakery has the 'monopsony' power to set its own wages, free from competition from any rival bakeries. However, it has to pay all of its bakers the same daily wage.
There are three bakers in town: Danny, Ella and Chet. The bakery can hire one, two or all three of them. Danny produces $6 worth of cakes per day; Chet produces $7 worth of cakes per day; Ella produces $7 worth of cakes per day. [If more than one is employed, the value of their total cake output is just the sum of their individual productivities. For example, if all three are employed they will together produce $6+$7+$7=$20 worth of cakes]. They have different preferences regarding work vs leisure. The bakery knows that Danny will work for $2 per day, while Chet is happy to work for $3 per day and Ella is only willing to work for $5 per day.
The bakery needs to decide which bakers to hire in order to maximise profits. Assume that, when indifferent between hiring plans, the bakery chooses the one that involves the most hiring. For example, if it is indifferent between hiring one and hiring two bakers, it will choose the latter option.
Question: 5. You are the mayor of the town, and are considering introducing a minimum daily wage. What is the lowest value of the minimum wage that will lead to a rise in employment?
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