Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that Matt's earnings will be divided equally among Matt and the 99 other students who live in Matt's dorm. What will be Matt's economic surplus from accepting the job?

Question

Quizplus · Accepted Answer

Given that the $50 wage now has to be shared among 100 people, everyone's earnings are now $0.50 per hour. Thus, since Matt's reservation wage is $7.00 per hour, his economic surplus is from accepting the job would be -$6.50 = $0.50 - $7.00.

Matt Is Offered a Job Driving the Campus Shuttle Bus