Question

A firm has the choice of offering "dirty" jobs that are likely to cause severe health problems for its workers or of offering "clean" jobs by installing safety equipment at acost of $5 per hour per employee that will substantially reduce the chances of health problems. The firm willA) install the safety equipment if workers can ascertain whether they are working a dirty or a clean job.B) never willingly choose to install the costly safety equipment. C) willingly install the safety equipment if workers are willing to be paid $7 per hour less in a clean job than in a dirty job.

Answer 1

Option (C) is correct.

Step-by-step explanation:

In this situation, a firm will analyse the cost and benefits associated with the choice of installing the safety equipment or not.

Cost of installing the safety equipment is $5 per hour per employee

Hence, if the firm will pay $7 per hour less in the clean job than the wages paid to the employees in the dirty job then this will make the firm better off because the reduction in wages per hour per employee is greater than the cost of installing safety equipment per hour per employee.