The marginal revenue product of labour in the local saw mill is MRPL = 20 - .5L, where L = the number of workers. If the mill hires 20 workers, what is the wage rate?
A)12
B)10
C)8
D)5

Question

Quizplus · Accepted Answer

To determine the wage rate, we need to find where the marginal revenue product of labour equals the wage rate. So we set MRPL = W where W = wage rate:
20 - 0.5L = W
Plugging in L = 20 (since the mill hires 20 workers), we get:
20 - 0.5(20) = W
20 - 10 = W
10 = W
Therefore, the wage rate is 10, which corresponds to choice (B).

The Marginal Revenue Product of Labour in the Local Saw