Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table below. Each cup of coffee sells for $2.00. $\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Number } \
\text { of } \
\text { workers }
\end{array} & \begin{array}{c}
\text { Coffee } \
\text { (Cups/hour) }
\end{array} \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 45 \
\hline 3 & 60 \
\hline 4 & 70 \
\hline 5 & 75 \
\hline
\end{array}$

The most the coffee shop would be willing pay the third worker is ______ per hour.

Question

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table below. Each cup of coffee sells for $2.00. $\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Number } \
\text { of } \
\text { workers }
\end{array} & \begin{array}{c}
\text { Coffee } \
\text { (Cups/hour) }
\end{array} \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 45 \
\hline 3 & 60 \
\hline 4 & 70 \
\hline 5 & 75 \
\hline
\end{array}$

The most the coffee shop would be willing pay the third worker is ______ per hour.

Quizplus · Accepted Answer

To maximize profits, Espresso Yourself Coffee Shop should hire workers up to the point where the marginal revenue product (MRP) of the worker equals the wage rate. The MRP of a worker is the additional revenue generated from hiring one more worker.

From the table, we can find the MRP of each worker:
- MRP of the first worker = $50.00 (25 cups/hour x $2.00/cup)
- MRP of the second worker = $80.00 (20 cups/hour x $2.00/cup)
- MRP of the third worker = $60.00 (15 cups/hour x $2.00/cup)
- MRP of the fourth worker = $70.00 (10 cups/hour x $2.00/cup)
- MRP of the fifth worker = $50.00 (5 cups/hour x $2.00/cup)

Therefore, the most the coffee shop would be willing to pay the third worker is $60.00 per hour, which is equal to their MRP. Any wage rate above $60.00 would result in the coffee shop's profits decreasing.

Of the answer choices, only (C) $22.50 is less than $60.00.

Espresso Yourself Coffee Shop Hires Workers in a Competitive Labor