Determine the negotiate a wage increase, Managerial Economics

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Mark works for Maple Feel Inc., which exports maple syrup to Slovakia. Currently, he generates $60,000 a year of net revenues for the firm and his salary is $60,000 per year. Mark is planning to hire a teacher to learn some Slovak. His only cost would be the teacher's fee of $50 per hour. Mark expects that if he devotes H hours to the study of the Slovak language, his ability to generate sales in Slovakia will increase to $60,000 + $1,400H1/2 per year. Mark will retire after one more year of working.

(a) Suppose there are many similar companies trying to export goods to Slovakia and in each of them Mark's knowledge of the Slovak language would be equally useful as in Maple Feel. How many hours will he devote to learning Slovak?

Now suppose Maple Feel is the only company in which Mark's knowledge of Slovak could be useful and that Mark's bargaining power is such that he could negotiate a wage increase equal to 20% of the gains from his increased productivity.

(b)  How many hours will Mark devote to learning Slovak if he bears all of the costs of his study?

(c) Suppose the company agrees to subsidize Mark's learning. How much of the $50 hourly fee will be paid by the company if they want Mark to study the efficient number of hours?

 

 


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