Question
In January, General Motors laid off 2,000 workers. Suppose you are hired as a consultant to estimate the impact of these layoffs on the number
In January, General Motors laid off 2,000 workers. Suppose you are hired as a consultant to estimate the impact of these layoffs on the number of cars that GM will be able to produce this year. To do so, you need to estimate the marginal productivity of workers at GM. You go to the company's web page and learn that the company pays the average worker $140,000 per year and is able to sell the average car for $20,000. If GM has monopsony power (or faces an upward sloping labor supply curve for some other reason), is this enough information to calculate the marginal productivity of workers at the company? If so, how many fewer cars per year will GM be able to produce this year given that it laid off 2,000 workers? If not, what is the most you can say about the marginal productivity of workers at GM given this information?
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