Suppose a new CEO wants to hire some foreign labor into the firm because he has calculated that the marginal product of foreign labor is a lot higher than that of domestic labor even though the foreign labor's wage rate is slightly higher than that of domestic labor. But he is not able to reach a consensus among the existing employees. Suppose 50 percent of the employees are in favor of the proposal, but another 50 percent are against it.

(1)  What is the decision rule based on economic principles? Please explain.

(2) If the new CEO behaves like a politician to maximize his support, how would he make his decision

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1According to economic principles the decision rule should be to hire the foreign labor if the margi... View the full answer