Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.The cost of reducing the injury rate by 1% is $200 per worker.Firms currently pay $20,000 per year to workers,without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury rate.The total benefit to workers of the existing firms' offer is __________ and the benefit of the new firms' offer is __________.

Question

Quizplus · Accepted Answer

The existing firms' offer only provides the workers with the $20,000 they were already receiving, and there is no improvement in safety. Therefore, the benefit is $20,000.

However, the new firms' offer provides the workers with a 1% reduction in the injury rate (valued at $1,000) in addition to a salary of $19,500. This means the benefit to workers is $1,000 + $19,500 = $20,500.

Therefore, the best choice is B because the benefit to workers is higher if they switch to the new firms' offer.

Suppose That All Workers Value a 1% Reduction in the Workplace