A friend tells you that he thinks that the salesmen who work at ...

[lak]

A friend tells you that he thinks that the salesmen who work at Apple stores are paid very low wages, given their productivity.
 
  Dividing Apple's revenues by the total number of employees shows that each employee contributed to an average of 473,000 in revenues in 2011 . But, most of Apple's sales staff are paid about 25,000 a year. What is the flaw, if any, in your friend's reasoning?

Question 2

Explain the underlying assumptions of the price leadership model. What conclusions can be made about the price charged and the output produced in an industry that has a dominant price leader?
 
  What will be an ideal response?

[Kjones0604]

Answer to Question 1

Your friend is incorrect because the wage that is paid to labor does not depend on the average revenue per employee. In a competitive market, the wage that is paid to a worker will be equal to the value of his marginal product, not the average contribution of all employees in the firm. Apple sales people might be willing to work for a low wage because they enjoy working with technology; that is, the low wages reflect a compensating differential. Combined with the fact that the job is not likely to require a high level of skills or specialized training, the firm can afford to pay wages that are considered low.
See http://www.nytimes.com/2012/06/24/business/apple-store-workers-loyal-but-short-on-pay.html?pagewanted=all

Answer to Question 2

The assumptions are: the industry is made up of one large firm and a number of smaller, competitive firms; the dominant firm maximizes profit subject to the constraint of market demand and subject to the behavior of smaller, competitive firms; and the dominant firm allows the smaller firms to sell all they want to at the price that the leader has set. The price charged and the output produced is between the price set by the perfectly competitive and the monopoly solutions.

[lak]

YES! Correct, THANKS for helping me on my review

[peter]

TYSM