Suppose that a campus restaurant increases its number of employees from 2 per da

Question

Suppose that a campus restaurant increases its number of employees from 2 per day to 4 per day, and that its daily total revenue therefore increases from $90 per day to $200 per day.

a. Assuming that each employee is equally productive, what is the marginal revenue product (MRP) per day of each additional employee?

$_______________

b. Assume that the restaurant is using their resources in a profit-maximizing way, and that each worker works 5 days each week, what is the current weekly wage rate in the labor market?

$_______________  

Explanation / Answer

(a)

MRP = Increase in revenue / Increase in number of employees

= $(200 - 90) / (4 - 2)

= $110 / 2

= $55

(b)

Profit is maximized when MRP = Wage rate

Wage rate = $55

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