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Introduction to the Theatre

by: Sherman Kihn

Introduction to the Theatre THE 100

Marketplace > Eastern Kentucky University > Theater Arts > THE 100 > Introduction to the Theatre
Sherman Kihn
GPA 3.55


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Class Notes
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This 11 page Class Notes was uploaded by Sherman Kihn on Sunday October 11, 2015. The Class Notes belongs to THE 100 at Eastern Kentucky University taught by Staff in Fall. Since its upload, it has received 26 views. For similar materials see /class/221427/the-100-eastern-kentucky-university in Theater Arts at Eastern Kentucky University.


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Date Created: 10/11/15
PART II BUSINESS ECONOMICS Chapter 6 Discrimination Exploitation Productivity and Labor Issues Questions for consideration What is labor What is the typical role of labor in various production processes How do rms choose whether to hire workers or buy machines to do the work Why do workers earn so little compared to managers In the next few chapters we move to a subdiscipline known as business economics In this area we are largely concerned with how rms and markets are organized for business and how business decisions are made Most rms are in business to make a pro t We make a simplifying assumption in economics that rms attempt to maximize their pro ts subject to resource constraints and the cost of marketing those products Pro t per unit of time is calculated as revenue minus cost So a rm that desires to maximize pro ts must either increase its revenues or decrease its costs We will examine cost structures in the next chapter and revenue options for rms immediately following the cost chapter However as we shall see an analysis of cost structures is necessarily also an analysis of productivity since the two items are intricately related Hence the theoretical focus in this chapter will be on productivity Labor Issues Production is never accomplished without the use of labor as an input Even the most automated mechanized factory setting requires employees to program the computers and push the buttons This has been true since the beginning of time Although a number of edible plants grow wild tubers nuts and berries tropical fruits most land is unproductive until someone tills the soil and plants the seed Laborintensive production methods still dominate in many lesser developed countries and many families are completely nancially dependent on wage income There are a whole host of labor issues worthy of exploration In addition to those mentioned in the title other items include labor unions minimum wage gender issues and globalization impacts on labor We will need some additional economic tools in order to adequately explore these issues so we rst present an analysis of productivity before discussing these labor issues Production and Productivity We begin with a few de nitions Productivity and costs are inversely related For two workers who are paid at the same wage rate the employee who is more productive generates output at lower perunit costs than the one who is less productive Productivity is measured as output per unit of input while costs are measured as inputs in monetary value terms per unit of output The output of a rm is its production of goods and services The inputs are the factors of production 7 land labor capital and entrepreneurial activity We classify inputs as either xed or variable Variable inputs are those inputs that change with production such as raw materials energy use and labor For our purposes we will have labor as our only variable input Fixed inputs are those inputs that are unchanging that do not vary as we increase or decrease production levels Land buildings and capital equipment are typically regarded as xed inputs Output can be quoted at one of three levels total average and marginal Total output is straightforward ithe amount of production by a rm or a factory in a speci c period of time When output is calculated at the last two levels the concept is more appropriately referred to as productivity 7 output per unit of input Average output more appropriately known as average product is the amount of total output divided by the amount of labor input We calculate average output on a daily basis in a number of areas Sports examples are abundant In soccer we speak of minutes per game for individual players goals allowed by the keeper per shots attempted and goals per game for the team Player statistics are kept in basketball for points rebounds and assists per game and in baseball for batting average elding percentage and ea1ned run average National statistics are also calculated as averages We calculate GDP per capita doctors per 1000 citizens and electricity use per household All these average calculations are measures of productivity Marginal product on the other hand is the amount of output generated by one more unit of labor input That is if we add one more worker to the production process how much additional output is produced Marginal calculations are less common but examples abound Income taxes have average and marginal calculations The amount of income tax paid divided by the amount of income earned is the average tax rate But the amount of additional income tax that would be paid if a person earned an additional 1000 is a marginal calculation When we say that farm land is marginal for production we mean that the land will barely yield enough produce to justify tilling the soil and planting the seed A college student has an overall grade point average GPA for all the time she has been in college but also a grade point average calculation for each term The former of these is an average calculation the GPA calculated over all terms The latter is a marginal calculation the GPA for only the last term A numeric example will help to clarify these terms Suppose we have a factory that produces handcrafted clocks There are xed inputs in place 7 the land the building and the machinery Each clock produced will use the same amount of raw materials wood internal workings and paint and the same amount of energy Even though the energy and raw materials are variable they fall into a separate classi cation of variables that are exactly proportional to output We will say more about these proportional inputs later As noted above labor will be our only truly variable input In the following equation the quantity of output is speci ed as a function of the labor input 1 Q XL2YL3 where Q is the number of clocks produced per month and L is the number of workers employed X and Y are parameters that are estimated from data gathered from hundreds of clock factories with industrial engineers and economists working together to try to understand the relationship between the number of workers employed in a typical clock factory and the output generated Equation 1 is known as a production function in one variable Output is speci ed as a function of the one variable input labor Suppose we apply values to the estimated parameters with X equal to 28 and Y equal to 2 so the equation becomes Q 28 L 2 L3 Although these parameter values are fabricated for this example in reality they might have been obtained through data gathering and estimation as noted above For labor input from zero to ten employees the equation generates Table 61 and the accompanying charts in Figure 61 When zero labor is employed the total output of clocks produced shown in the second column is necessarily zero The rst worker then generates 26 clocks 2812 213 Adding a second worker results in 96 clocks 2822 223 The total output for three workers is 198 clocks 283Z 233 and so on with the output for ten workers equal to 800 2810Z 2103 The average product and marginal product are calculated in the last two columns Average product is calculated as total output Q divided by the amount oflabor input L So the average product for one worker is 26 26 1 for two orkers the average product is 48 962 an so on Marginal product is calculated as the change in output divi ed y the change in the number ofworkers When th ange in the number of workers is one then marginal product is the difference in output for two consecutive workers So the marginal product for the first worker is 26 26 0 The marginal product for the second worker is 70 equal to the output of 96 for two workers minus the output on6 for one worker That is the second worker contributes an additional 70 clocks to the firm s total output As we go down the list we can calculate the marginal product for any worker ifwe know the output for the previous worker Thus the marginal product for the eighth worker is 82 clocks to I ei m 39 I e in workers Figure 61 Labor Input The marginal product calculations probably seem strange to someone new to economics The firstworker adds 26 clocks to the total output while the secondworker has a marginal contribution nearly three times greater 70 clocks Can the second worker be that much more productive The answer is no especially ifwe assume that these cra smen have roughly equal abilities The reason the secondworker is so much more productive is because of rpecializaiion J 439 39 lw One worker 39 mu L do every chore necessary to build a clock When two people work together however they can split up the work more ef ciently each doing more ofwhat she enjoys or more tasks that require hisher particular skill areas Adding a third worker and then additional workers beyond that simply reinforces the efficiency gains the second worker added In fact the marginal product calculations continue to increase up through the fifth worker added to the factory A the fi h worker the marginal product of each additional worker decreases due to the law of eventually diminishing returns This law states h varia le inputs only increases in labor i this case are a ed to xed inputs outputwill first increase because i p ts are in combined efficiently but eventually additional inputs lead to smaller even negative increases in output The marginal product calculations above rise with the first five employees then begin to fallwith the sixth from130 to 126 when diminishing returns sets in Marginal product decreases with additional workers but continues to remain positive until the tenth worker is Table 61 Labor Product Average Marginal Input Output Product Product L Q AP MP 0 0 l 26 26 26 2 96 48 70 3 198 66 102 4 320 80 122 5 450 90 130 6 576 96 126 7 686 98 110 8 768 96 82 9 810 90 42 10 800 80 10 added At that point congestion has set in There are too many workers or too few tools in the factory to warrant the addition of a tenth worker 7 she gets in the way more than she contributes Consider planting 100 hectares of land using only hand tools One person alone could never fully utilize the land But as more workers are added specializations develop One person plows another plants another waters another fertilizes another cultivates Adding more workers leads to more specializations but smaller increases in output Eventually too many workers in the eld begin to get in each other s way even trampling the output and the marginal product turns negative It has been said that if we did not have diminishing returns one worker and one potted plant could produce the entire world food supply The graphs to the right of the table are plots of the average product AP and marginal product MP columns Both sets of data are upsidedown U shapes They rst rise to a maximum then begin to decrease with the marginal product graph rising and falling more sharply than the average product graph The interesting point is that the marginal product intersects the average product at the average product s maximum value This intersection is important and helps to illustrate the marginal average relationship When the marginal is above the average it pulls the average up and when the marginal is below the average it pulls the average down Take note in particular at the sixth and seventh workers Although the marginal product is falling as these workers are added the marginal product is still above the average product and the average product rises at each point compared to its previous level The previous marginal product examples help to clarify this marginalaverage relationship Any college student knows that hisher grades each term will affect hisher overall GPA Ifthis term s GPA is higher than the overall GPA the overall GPA will rise If it is lower the GPA will fall And if a soccer game results in a shutout for the home team the keeper s goals per shots attempted average will fall The Market for Resources All of the costs incurred by business can be attributed to payments made to the factors of production That is recalling the Circular Flow diagram in Chapter 2 all the inputs used in the production process can be classi ed as land including raw materials land for production agriculture and land as investment property labor both salaried and hourly and capital both nancial and physical plant equipment and machinery One of the more signi cant costs affecting business worldwide is the cost of labor In many countries machinery is rare or the cost of energy required to run the machines is prohibitive In addition many countries have an abundant supply of labor and relatively low wage rates making the use of labor more attractive than the use of alternative inputs Thus in looking at input markets we will focus on the market for labor The Demand for Labor The demand for labor is a quotderived demandquot derived from the demand for the product Workers are hired because they are needed for the production of goods and services which are then sold in product markets generating pro ts for business entrepreneurs managers and investors If there is no demand for the product there is no labor needed to produce the product Conversely the more the product is in demand the more labor will be demanded to produce the product That is the demand for labor will re ect the rm s willingness and ability to hire workers The supply of labor will re ect individuals willingness and abilities to work in speci c employment opportunities Wages and employment will then be determined by the intersection of the demand for labor and the supply of labor The rm s demand for labor follows from the productivity analysis we undertook above The output Q and marginal product MP data from Table 61 are reproduced in Table 62 below with three additional columns added to re ect the revenue associated with the sale of the clocks We assume that the rm can sell all the clocks they produce at a constant selling price of 25 as shown in the rst additional column The revenue generated by the sale of the clocks equal to the amount of output Q multiplied by the selling price is shown in the second new column The third new column is a new concept marginal revenue product MRP The marginal revenue product for labor is the increase in revenue generated by one additional worker This concept stands in contrast to marginal product which is the amount of physical output generated by one more worker Henceforth we will use the term marginal physical product MPP instead of marginal product to refer to the marginal output increase The marginal revenue product is calculated at the change in total revenue divided by the change in labor input In Table 62 the change in labor input is one so the MRP is simply the change in total revenue from one line of the table to the next MRP can also be calculated as the marginal physical product MPP multiplied by the selling price For consecutive input levels the two calculations give identical results The plot of the MRP calculations from Table 62 is provided in Figure 62 The graph is identical to the graph of marginal product in Figure 61 except that the vertical axis is changed Figure 62 Marglnal Revenue Praduct Now We consider the decision a manager must make if she is concerned With how many Workers to hire Suppose the wage rate for a cra sman skilled in handcra ed clocks is 3000 per month Table 62 5131ng Tmal Revenue 25 25 25 25 25 25 25 25 25 25 25 How many employees should the manager hire First We know the manager should hire on the down side ofthe MRP inction since diminishing marginal retums have not yet set in Second the manager clearly does not Want to hire the tenth Worker since that Worker s marginal physical product is negative So the choice comes down to hiring between six and nine employees The employment decision comes down to a comparison between the cost of a new hire and the bene t that new worker brings Hiring the sixth worker costs 3000 and brings in 3 150 additional revenue to the rm So the sixth worker should be hired Hiring the seventh worker also costs 3000 but that worker only brings in 2750 additional revenue Hiring the seventh employee would result in a cost outlay greater than the revenue generated so the seventh employee should not be hired Thus the employment level in this example would be six workers Now suppose the wage rate were to rise to 3200 At that point the cost of the sixth worker would exceed the bene t derived from that worker 3150 and the sixth worker would not be hired That is an increase in the wage rate results in a decrease in the quantity of labor hired But suppose the wage rate were to fall say to 2700 At that wage rate hiring the seventh worker makes economic sense in that the marginal revenue product 2750 exceeds the wage rate Thus a decrease in the wage rate results in an increase in the quantity of labor hired The decisions we have just made are the same types of decisions consumers face when making a purchase decision except that here the purchase decision is in the hands of the plant manager But what we see from this analysis is that the marginal revenue product curve is the demand for labor in that it is consistent with the law of demand and answers the question of how much will be purchased in this case labor at alternative prices in this case wages As with the demand for products that we studied in Chapter 2 the demand for labor is not static it also shifts with changes in the market There are four major labor demand shifters The rst is the price of the product that the labor produces The demand for labor shifts to the right with increases in the price of the product and shifts to the left with decreases in the product price This outcome follows from the calculation of the marginal revenue product When the product price increases each of the MRP calculations increase since the MRP is calculated as the MPP multiplied by the product price The vertical shift that results from those MRP increases is also a shift to the right horizontally hence an increase in the demand for labor The demand for labor also shifts to the right increases with enhancements in technology and with increases in labor productivity Each of these changes results in an increase in the marginal physical product resulting also in increases in the marginal revenue product and increases in the demand for labor Finally the demand for labor shifts to the right with increased prices of other inputs especially increases in the price of machinery or energy costs Machinery and equipment are substitutes for labor and as with the product substitutes that we studied in Chapter 2 an increase in the price of a substitute good leads to an increase in the demand for the good in question The Supply of Labor and Labor Market Equilibrium Firms demand labor and individuals supply labor The supply of labor for an individual begins with the individual s reservation wage which is the minimum wage an individual must receive before she is willing to work Naturally each individual can have a number of reservation wages each one different for different work opportunities For most college students their reservation wages for working at Tesco would be much lower than their reservation wages for sifting through garbage in the local recycling center But if we look at a normal job that is not too tedious or too dirty or too dangerous the supply of labor for an individual has a positive vertical intercept the reservation wage is then mostly horizontal over a normal work week and is then positively sloped as the number of hours worked per week is greater and greater That is an individual is willing to work more and more hours per week as the wage rate increases In many factory settings people regularly volunteer for overtime hours and weekend or holiday duty The market supply of labor is the horizontal summation of the willingness of all individual workers to supply labor as shown in Figure 63 The market supply of labor is upward sloping indicating that more people are willing to work at higher wage rates At even higher wage rates the supply of labor may be quotbackward bendingquot indicating that wages are so high that some workers reduce their hours worked or actually leave the labor force preferiing leisure time at home over the additional income As with the demand for labor the supply of labor shifts over time The leading labor supply shifter is an increase in population due to increased immigration or a higher population grth rate The supply of labor also changes for different industries depending on job attractiveness and worker preferences That is as more attractive opportunities become available people are less inclined to offer their services for the less attractive positions Many janitorial and manual labor positions in industrialized countries are filled with immigrants since most of the native citizens are relatively well off and are less willing to work at these less attractive positions Income earned from investments and rental activities can also reduce the amount of hours worked again with people preferiing their leisure time over work Figure 63 Nage Rate 8 s0 6 5 4 2 DDMRP 00 14 v v 000 Number of Workers The equilibrium wage rate is determined by the intersection of the labor demand and labor supply curves This is shown in Figure 63 at 53 per hour with 14000 workers employed But as we learned in Chapter 2 equilibrium is not nearly so interesting as disequilibrium so we now turn our attention to a number of disequilibrium situations Minimum Wage A minimum wage is a legally enforced price oor Workers can be paid more than the wage that is set by law but they cannot be paid less Figure 64 shows a minimum wage of 6 imposed on the labor supply and demand conditions from Figure 63 When the minimum wage is e kctive that is when the minimum wage is greater than the market equilibrium wage three outcomes occur First unless the demand for labor is perfectly inelastic rms will move along their market demand curve reducing the number of workers they wish to hire In Figure 64 the quantity demanded is reduced from 14000 to 11000 workers Second more workers are now willing to work In the diagram then number of available workers increases from 14000 to 20000 The increase in the quantity supplied together with the decrease in the quantity demanded results in an excess supply of workers at the 6 wage rate Finally from a societal welfare standpoint there will be a deadweight loss equal to the triangular wedge between the demand and supply curves from the demandsupply intersection to the new quantity of labor demanded by the firms Figure 64 Wage Rate D0 MRP 0 1114 0 v 001 Number of Workers The intent of minimum wage legislation is to raise the welfare of the working class but there is no guarantee that workers as a whole bene t Consider Figures 65 and 66 In both diagrams the supply curve is unit elastic throughout the market equilibrium wage rate is 53 with 26000 workers employed at that wage rate and the minimum wage is 6 with 30000 workers willing and able to work at that wage rate The difference between the two diagrams lies with the demand curves The demand curve in Figure 65 is drawn fairly inelastic while the demand curve in 66 is elastic When the minimum wage is enacted firms reduce their hiring by 2000 workers in Figure 65 and by 8000 workers in Figure 66 The 2000 workers in Figure 65 lose their hourly wage of 53 a total of 10600 per hour while the 24000 remaining workers gain 07 per hour a total of 17500 per hour Thus the gain for the remaining workers is greater than the loss to those who lost their jobs The numbers for Figure 65 are quite different The 18000 who retain their jobs increase their total hourly wage by 12600 while the 8000 who lost theirjobs give up 42400 per hour a staggering loss of almost 30000 per hour Figure 65 Wage Rate J D0 MRI 34 3 gt0 V 1000 Number of Workers Figure 66 W age Rate D0lJRP 3 30 Y 000 Number of V orkers The conclusion for the above analysis is that workers as a whole benefit if they are in jobs with an inelastic demand for labor but lose if they are in jobs that have an elastic demand for labor The demand for labor will in general be inelastic if there are no good substitutes for labor and will be elastic if substitutes are available Naturally the major substitute for labor is capital equipment and machinery In country after country we have seen automated garbage trucks replace workers a substitution of capital for labor 7 clearly an elastic demand But there are other jobs that machines cannot do Hotel housekeeping is one such job There is no machine that can change the linens vacuum the oors or clean the bathrooms Hotel managers try to reduce the labor time required wherever possible but replacing the workers is impossible By contrast fast food restaurants have become very capital intensive Machines have replaced people in many of the daytoday chores Cooking is very automated 7 a package of frozen french fries is placed in a metal basket a button is pushed the basket is lowered into a cooker and the cooked fries pop up a few minutes later Soda delivery is also automated 7 a worker places a cup under a dispenser spout pushes the button and comes back a short time later to cap the soda and take it to the customer So the minimum wage is not a straightforward proposition An attempt to benefit workers through higher wages could back re and actually do harm instead Workers as a whole will benefit only if the demand for labor is substantially inelastic In addition the rms lose through higher labor costs or through machinery purchase costs to replace the highercost labor Finally society loses the deadweight triangle as noted above and that loss increases as the demand for labor is more elastic compare the deadweight loss in Figure 65 with that in Figure 66 Exploitation A second disequilibrium labor situation is worker exploitation a setting in which workers are substantially underpaid for the work they do Exploitation typically occurs in situations where the employer has substantial market power and is able to enforce low wages or poor working conditions This occurs most often when there is only one major employer in a village or region as in a mining town or a rural factory setting We will cover exploitation only brie y here in


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