Suppose your neighbor owns a restaurant and boasts that he is able to turn a handsome accounting profit because of his low labor costs. He attributes this to the fact that he uses his sons and daughters as cooks and waiters
His point is that he offers them below-market wages. How would you respond to your neighbor's statement? What would you tell him to expect as his children continue to work for him while they are in college and beyond?
Your neighbor might believe that he has low labor costs because of the low wages he is paying them. However, he must think carefully about their opportunity cost. If his children could earn higher wages at a job outside the restaurant than the extra-added profitability that they bring to the firm then their true cost must be taken into account. As his children go through college their opportunity cost will rise since they will become more valuable in the labor market.
You might also like to view...
The price of a good will rise when:
a. there is a shortage of the good. b. there is a surplus of the good. c. demand for the good decreases. d. the supply of the good increases.
Prior to 1840, most businesses were
A) family-owned. B) corporate in structure. C) vertically integrated. D) collections of partnerships.
The goals of charitable organizations are inevitably inconsistent with the principles associated with profit maximization
Indicate whether the statement is true or false
The demand curve for Japanese yen is downward sloping because when the exchange rate (dollars per yen) falls,
a. Japanese goods become cheaper so foreigners buy more of them and need more yen to do so b. foreigners need more dollars to buy one yen so they can now afford more Japanese goods c. the demand curve for yen shifts to the right as foreigners buy more Japanese goods d. foreign goods become cheaper so Japanese buy more of them and need more yen to do so e. the supply of yen increases in response to people demanding more yen