Question
Serena earns $15 per hour in her current job and works 40 hours a week. She loves her job and puts in his maximum effort
Serena earns $15 per hour in her current job and works 40 hours a week. She loves her job and puts in his maximum effort with no disutility. In fact, Serena earns extra utility worth $3 per hour from camaraderie, status, and enjoyment of the job. If she loses this job Serena would have two fallback options. One option is for her to work as a freelancer, earning $10 an hour for 40 hours a week of work. Freelancer's work does not appeal to Serena that much, and she considers the disutility associated with it to be equivalent to $2 per hour. The second option is to be unemployed and receive an unemployment benefit of $400 per week. Serena is indifferent about the possibility of being unemployed (that is, there is no utility or disutility associated with being unemployed).
a) Which of the two fallback options is Serena's preferred option?
Based on your answer at (a), what is Serena's employment rent per hour?
a) What is Serena's employment rent overall given that it would take her exactly 10 weeks to find a job with the same pay level and characteristics of her current one?
b) Serena's employer has fallen on bad times, and in order to save the business the CEO is considering reducing the hourly wage for the employees. What is the minimum hourly wage that Serena would need to be paid in order to ensure that she will not quit?
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