Blue Sky, a fruit juice company near Nsawam is maximizing profits over its first two years of production due to its exports to the UK. In the first period, the real wage paid to its workers is W = GHC 30,000, training costs for the new workers it just recruited are also given by Z= GHC 2000, and the marginal product is MP2=GHC 25,000 

a. If Blue Sky discounts and period profits at r= 5% and marginal product of workers in period 2 is MP2=GHC 35,000, how much should Blue Sky pay its employees in the second period to maximize profits? 

b. How does W2 compare to MP2?

c. If the skills acquired by workers during the 1st period are completely transferable to a rival company such as COCA Beverage Company and it is costless for individuals to change firms, will the rival company be able to steal the new employees of Blue Sky in the 2nd period? Explain whether or not it is possible to steal new employees of Blue Sky? 

d. Course Instructor: Dr J.A. Forson 

d. If COCA Beverage Company knows about the potential problem in (c), how should it alter its behaviour? 

Answer rating: 100% (QA)

a assuming that the discount rate is 5 the profits in the first period are Profits1 MP1 W1 1 005 250... View the full answer