Use the resource demand data shown on the left and the resource supply data on the right in answering the following question: $\begin{array}{c}
\underline{\text { Labor Demand Data }}\quad\quad\quad\quad\quad\quad\quad\quad\underline{\text { Labor Supply Data }}\
\begin{array}{c}
\
\underline{\text {Employment}}\
0\
1\
2\
3\
4\
5\
6
\end{array}
\begin{array}{c}
\text {Marginal}\
\underline{\text {Product}}\
0\
15\
28\
39\
48\
55\
60
\end{array}
\begin{array}{c}
\text { Product }\
\underline{\text { Price } }\
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20 \
1.00
\end{array}
\begin{array}{c}
\
\underline{\text {Employment}}\
0\
1\
2\
3\
4\
5\
6
\end{array}
\begin{array}{c}
\text { Wage}\
\underline{\text { Rate }} \
-- \
\$1.00 \
2.00\
3.00 \
4.00 \
5.00 \
6.00
\end{array}
\end{array}$
Refer to the given data.What will be the profit-maximizing wage rate?

Question

Use the resource demand data shown on the left and the resource supply data on the right in answering the following question: $\begin{array}{c}
\underline{\text { Labor Demand Data }}\quad\quad\quad\quad\quad\quad\quad\quad\underline{\text { Labor Supply Data }}\
\begin{array}{c}
\
\underline{\text {Employment}}\
0\
1\
2\
3\
4\
5\
6
\end{array}
\begin{array}{c}
\text {Marginal}\
\underline{\text {Product}}\
0\
15\
28\
39\
48\
55\
60
\end{array}
\begin{array}{c}
\text { Product }\
\underline{\text { Price } }\
\$ 2.20 \
2.00 \
1.80 \
1.60 \
1.40 \
1.20 \
1.00 
\end{array}
\begin{array}{c}
\
\underline{\text {Employment}}\
0\
1\
2\
3\
4\
5\
6 
\end{array}
\begin{array}{c}
\text { Wage}\
\underline{\text { Rate }} \
-- \
\$1.00 \
2.00\
3.00 \
4.00 \
5.00 \
6.00
\end{array}
\end{array}$
  Refer to the given data.What will be the profit-maximizing wage rate?

Quizplus · Accepted Answer

To find the profit-maximizing wage rate, we need to determine the level of employment where the marginal revenue product (MRP) of labor equals the wage rate. MRP is calculated as the marginal product (MP) of labor multiplied by the product price. We calculate MRP for each level of employment and compare it with the wage rate to find where they are equal or where MRP just starts to fall below the wage rate.1. For 1 employee: MP = 15, Price = $2.00, MRP = 15 * $2.00 = $30. Wage = $1.00.2. For 2 employees: MP = 28, Price = $1.80, MRP = 28 * $1.80 = $50.40. Wage = $2.00.3. For 3 employees: MP = 39, Price = $1.60, MRP = 39 * $1.60 = $62.40. Wage = $3.00.4. For 4 employees: MP = 48, Price = $1.40, MRP = 48 * $1.40 = $67.20. Wage = $4.00.At 3 employees, the MRP ($62.40) is greater than the wage rate ($3.00), but when we move to 4 employees, the wage rate ($4.00) is close to the MRP ($67.20), and adding another employee would make the wage rate exceed the MRP. Therefore, the profit-maximizing wage rate is where the MRP is equal to or just above the wage rate, which is at $3.00 for 3 employees.

Use the Resource Demand Data Shown on the Left and the Resource