Author Question: Assume a company has a cafeteria where it lets all its workers eat without making them pay up front. ... (Read 90 times)

rmenurse · **on:** Jun 29, 2018

Assume a company has a cafeteria where it lets all its workers eat without making them pay up front. Instead, at the end of the month the total cost of eating at the company cafeteria is added up and divided by the total number of workers.

This amount is then deducted from each worker's paycheck. Explain how this practice may lead to a negative externality.

Question 2

Does the production function in the table above exhibit diminishing returns? Explain.

What will be an ideal response?

kkenney · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Since each person faces a marginal cost of zero of dining of zero. This will lead many workers to eat more than they otherwise would if they faced the true cost of their meals. This could result in many of the workers overeating that may make for a less healthy workforce.

Answer to Question 2

No, the production function does not exhibit diminishing returns. As the amount of labor hired increases, the marginal product of labor is constant. This violates the law of diminishing returns.