The city of New Orleans has 200 advertising companies, 199 of which employ designers of normal ability at a salary of $100,000 a year. Paying this salary, each of the 199 firms makes a normal profit on $500,000 in revenue. However, the 200th company employs Janus Jacobs, an unusually talented designer. This company collects $1,000,000 in revenues because of Jacobs's talent. (L03)
a. How much will Jacobs earn? What proportion of his annual salary will be economic rent?
b. Why won't the advertising company for which Jacobs works be able to earn an economic profit?