Using lower picture to start the problem 352 PART FIVE Microeconomics of Resourc

Question

Using lower picture to start the problem

352 PART FIVE Microeconomics of Resource Markets and Government day while being paid $20 per hour for an eight-hour day. LO15.8 a. What is the current labor cost per car sold? b. Suppose that when the dealer raises the price of labor to S30 per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased?

Explanation / Answer

Req a: Total wages of salesmand per day (8 hrs@20) 160 Divide: number of cars sold 1 Labour cost per car 160 Efficiency of labour expenditure 0.00625 (Number of car sold/ Total wages ie.e 1/160) Req b: Total revised wages (8 hours @30) 240 Divide: Number of cars sold 2 Labour cost per car sold 120 Reduction in labour cost per car 40 (160-120) Effiency of Labour expenditures 0.008333 ( i.e. 1/120) Hence, labour efficiency has increased

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