Assume you open your own business. Your business is a service business and has zero marginal cost (think of a service that you charge a finder’s fee for whatever it is you find).
A- Use the MRC=MRP concept to determine if you would hire a friend asking to be paid $200,000/year. (4 points).
B- Assume you have determined that your friend is likely to bring $300,000 in fees to your business. Would offering your friend $200,000 be enough to attract him? Assume your friend is motivated solely by income and that your industry is purely competitive (3 points).
C. Would your answer in B change if you had monopsony power in your market? Explain your answer. (3 points)
Essay