Chapter 1 Discussion Questions

1.1 You must decide whether to hire another secretary, whose output is easily measured, or merely to install Voice Processor, which is a new and extremely reliable voice recognition software, and employ existing secretaries. A secretary costs $800 per month and Voice Processor, which can only be rented, costs $500 per month. Voice Processor yields 6,000 pages of output per year. The firm is only planning to be in business for one more year.  If a new secretary produces twice as much output (correctly typed pages) Voice Processor, should the firm hire the secretary or rent Voice Processor?

1.2 A new computer program has recently been developed which can be used to write trash novels. The computerized novels follow a formula and are quite similar. Each computerized novel has an expected sales revenue of $1 million. The publishing houses also are bombarded with manuscripts by aspiring trash novel writers. Most of these novels are worthless and are unable to generate even $500 in sales. But every so often, an author produces a spectacular novel that can generate upwards of $50 million in sales. Should the publishing house buy the program that produces trash novels by computer, or should it rely on its old methods of reading manuscripts and publishing those that it thinks will be successful? What about using both strategies?

1.3 Marginal product of labor (MPL) of a worker who is employed in a price-taking profit-maximizing firm is equal to:

a. Zero.

b. The value of his output plus the rental cost of capital used for her job.

c. Her wage.

d. Rental cost of capital that is used for her job.

1.4 Consider a firm that makes zero profit on a marginal worker i.e. the change in the firm's profit as a result of hiring an extra worker is zero. Most likely:

a. The firm employs the optimal number of workers.

b. The firm should hire additional workers.

c. The firm's profit is equal to zero.

d. None of the above.

1.5 You are recruiting to fill a position in your firm. Should you try to “sell” the job to applicants by describing it in the nicest terms that you can? Should you make the job sound as desirable as possible? As a job applicant, should you try as hard as you can to convince the recruiter that you are the perfect candidate for the job? Think about these issues over the next couple of chapters. (Hint: a similar situation arises on first dates.)