Stan is a mild-mannered Economics professor at the University of Idaho. One day he is casually going about his business when some unfortunate events occur. First, a student is openly playing a game on his (or her) phone while Stan is lecturing. This student didnt even move to the back row to perform such activities, as decorum would dictate. Second, a student makes a comment that Stans class is a joke. As usual, Stan cries himself to sleep, but at least this night he had a specific reason. The next day he decides he will quit teaching and start a squirrel hunting business on the UI campus. He uses his Economics background to determine the productivity function: Q=20L, where Q = number of squirrels caught and L = number of students hired each day to work the traps. This means his marginal productivity of labor is: MPL=10L. Stan can rent a fixed number of traps for $200 per day.

(3 points) Suppose Stan can sell each squirrel (pelt/meat) for $24. He must pay each worker $80 per day. What will Stans short-run labor demand be? How much will his company produce, and how much daily profit should he expect?

(3 points) A pandemic hits the UI campus. The squirrel population thrives as people attend school remotely and no longer drive near the campus. Stans marginal productivity increases to MPL=15L. . Wages and the prices of squirrel pelts/meats are not impacted by the pandemic. Solve to determine Stans new labor demand. Discuss the change briefly and sketch the impact of the pandemic on a simple demand diagram.

(5 points) The pandemic was all part of a dream, so we are back in the original situation (part a). This means his marginal productivity has the function: MPL=10L. Stans success progresses to the point where he regains his self-confidence and even decides to create a profile on several dating apps. Unfortunately, he did not foresee a labor shortage hitting the UI campus. All but four of Stans workers are lured away by the signing bonuses offered by local fast-food establishments.

Stan is desperate to keep these four workers, what wage should he be willing to offer based on the marginal productivity of the remaining workforce?

What will happen to daily profits if he adopts this wage (compare to part a)?

Lil Jimmy (one of the workers that was lured away by KFC) has heard about the new wage Stan is offering (the one from part i) and wants to come back. Should Stan hire him back at that wage? Show/explain your reasoning.

(3 points) Stan lives a humble lifestyle and can survive on $40 per day. He has also become attached to the four remaining workers and doesnt want them to go somewhere else. What is the absolute most he could pay in wages to these four and still maintain this lifestyle? Is there any logic in paying wages above marginal productivity in certain situations? Discuss/explain your answer.