The Hardboard Construction Company hired Bob at $10 an hour, but its output of doll houses only increased by three units a day. Two weeks later, the company purchased an $8 hammer for Bob and output increased by twelve units. Since the hammer increased
the marginal product more than Bob did, and at less cost, Hardboard fired Bob. Is this consistent with the theory of marginal productivity? Why or why not?
This example illustrates a minor flaw with the marginal productivity theory. Sometimes it is difficult to distinguish the output of an additional worker from that of the additional tool used by the worker. In this case, Bob was less productive without the hammer, but how productive will the hammer be without Bob?
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Economist A.C. Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality
What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?
Means-tested government benefits base benefits on
a. a household's wealth and are an incentive to save. b. a household's wealth and are a disincentive to save. c. the current interest rate and are an incentive to save. d. the current interest rate and are a disincentive to save.
Refer to Figure 8.9. At the market price of $18 per bushel, if this farmer produces 350 bales of hay, the total revenue would be A) $1,200. B) $2,800. C) $5,600. D) $6,300.
Which of the following is NOT a function of the Fed?
A. supervising member banks B. regulating the money supply C. holding reserves for depository institutions D. determining the credit-worthiness of firms and individuals