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Worker pay to cover the cost of measuring the output

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The next two questions refer to the following setup: Workers can work for one of two farms, picking strawberries. The number of trays, y, that a worker of ability a picks per day is y = 4a. Assume that a is uniform between 0 and 20. Farmer Jones pays $3 per tray and subtracts $15 a day from each worker’s pay to cover the cost of measuring the output. Farmer Smith pays a straight salary of $153 per day. (SHOW FULL STEPS PLEASE)

1. Which workers will choose to work for farmer Jones?

A. All of the workers with abilities greater than 8.

B. All of the workers with abilities less than 8.

C. All of the workers with abilities between 12 and 14.

D. All of the workers with abilities greater than 14.

E. All of the workers with abilities less than 14.

2. Suppose each tray of strawberries sells for $6. Farmer Jones’ cost of monitoring each worker is $15 per day, while farmer Smith incurs no monitoring costs. Apart from wage costs there are no other costs. In equilibrium, the two farmers’ respective profits are

A. πJones = $204 per worker and πSmith= $15 per worker

B. πJones = $18 per worker and πSmith = $24 per worker

C. πJones = $2 per worker and πSmith = $56 per worker

D. πJones = $56 per worker and πSmith = $2 per worker

E. πJones = $136 per worker and πSmith = $16 per worker

Reference no: EM131377317

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