If the wage rate paid to a textile employee is $120 and the marginal product of a worker is 12 yards of fabric, this means that for each additional dollar spent on labor, there is a gain of _________ yards of fabric.

Question

Quizplus · Accepted Answer

To find the gain in yards of fabric for each additional dollar spent on labor, we need to calculate the marginal revenue product (MRP) which is equal to the marginal product of labor (MPL) multiplied by the price of the output (P). In this case, MRP = MPL * P = 12 * $120 = $1440.

Therefore, the gain in yards of fabric for each additional dollar spent on labor is equal to the MRP divided by the wage rate, which is $1440/$120 = 12.

But the question is asking for the gain in yards of fabric for each additional dollar spent on labor, so we need to divide the MRP by the additional dollar spent on labor, which is just $1. Therefore, the answer is $1440/$1 = 1440 yards of fabric per additional dollar spent on labor. But we need to convert this to yards of fabric per additional dollar of wage rate, which is equal to 1440/120 = 12 yards of fabric per additional dollar of wage rate.

So the correct answer is B) 0.1, because each additional dollar of wage rate paid to a textile employee results in a gain of 0.1 yards of fabric.

If the Wage Rate Paid to a Textile Employee Is