The figure given below shows the income-leisure trade off of an individual.Figure 16.5
AB and AC: Income constraints of the individual
I1, I2, and I3 curves show the income leisure choices of the individual.
-Which of the following statements best defines the economics of the so-called superstar effect in the labor market?
A) This effect will result in cases in which individuals with large productivity differences receive vastly different compensation.
B) This effect occurs in cases in which individuals with small productivity differences receive very small differences in compensation.
C) This effect occurs when the firm hiring the superstar simply does not understand the term marginal-revenue product.
D) This effect occurs in cases in which individuals with small productivity differences receive vastly different compensation.
E) This effect usually occurs in industries in which a labor union has far-reaching powers.
Correct Answer:
Verified
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