Nudges and Public Policy Assessment
Module 3 • 10 Questions
Question 1 of 10
0 of 10 answered
Suppose an employer has a taste-based prejudice against minority workers. The market wage for majority workers is w_A = $20/hour and for minority workers is w_B = $15/hour. The employer has a utility function U = profit - d * L_B, where d = $8/hour is the discrimination coefficient. The marginal product of labor (identical for both groups) is MPL = 30 - 0.5 * (L_A + L_B). How many majority (L_A) and minority (L_B) workers will the firm hire, and what is the resulting deadweight loss (profit loss) relative to a completely non-prejudiced firm?
A
L_A = 20, L_B = 0. Profit loss (deadweight loss) = $125.
B
L_A = 0, L_B = 30. Profit loss (deadweight loss) = $0.
C
L_A = 10, L_B = 10. Profit loss (deadweight loss) = $50.
D
L_A = 20, L_B = 20. Profit loss (deadweight loss) = $100.