The marginal product of labor curve for Coast to Coast, a standup paddle board outfitter, is MRP_L = 500 -100L, where L is the number of guides hired per week and MRP_L is dollars earned per guide per week. The prevailing market wage is $200 per week. The choke wage for Coast to Coast is $____. A) 200 B) 300 C) 400 D) 500

Question

Quizplus · Accepted Answer

The choke wage is the wage at which the marginal product of labor becomes zero, or when the firm would not hire any workers because the cost of hiring is too high compared to the value of the labor. Setting the marginal product of labor equation to zero and solving for L gives us the wage at which this occurs. In the given equation, 500 - 100L = 0, solving for L gives L = 5. However, to find the choke wage, we set the marginal product of labor to zero and solve for the wage, which directly from the equation is $500, as that is the starting value before any labor is subtracted.

The Marginal Product of Labor Curve for Coast to Coast