Suppose that low-skilled workers employed in clearing woodland can each clear on
ID: 1255093 • Letter: S
Question
Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if they are each equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent, and each worker toils 40 hours per week for four weeks each month.a. What is the marginal revenue product of hiring one low-skilled worker to clear woodland for one month?
Instructions: Enter only whole numbers for your answer.
$ ________
b. How much revenue per hour does each worker bring in?
Instructions: Round your answer to two decimal places.
$ ________
c. If the minimum wage were $6.20, would the revenue per hour in part b exceed the minimum wage? Choose:
No or Yes
If so, by how much per hour?
Instructions: Round your answer to two decimal places.
$ ________ per hour
d. Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre?
Instructions: Enter only whole numbers for your answer. Enter a positive number after identifying profit or loss.
The firm’s (choose one): Profit or loss per acre will be $ ________.
e. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?
Instructions: Enter whole number for your answer.
$________
Explanation / Answer
Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if they are each equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent, and each worker toils 40 hours per week for four weeks each month.
a. What is the marginal revenue product of hiring one low-skilled worker to clear woodland for one month?
Instructions: Enter only whole numbers for your answer.
MRP is the change in total revenue product per worker.
Here the MR earned by the worker is $1000
$1000
b. How much revenue per hour does each worker bring in?
Instructions: Round your answer to two decimal places.
40 hrs per week.
For 4 weeks = 40x 4
= 160 hrs
$1000 is earned for 160 hrs
For 1 hr = $1000/160
= 6.25
$ 6.25
c. If the minimum wage were $6.20, would the revenue per hour in part b exceed the minimum wage? Choose:
No or Yes
Revenue per worker is $6.25, so it exceeds the min wage of $6.20
Yes
If so, by how much per hour?
Instructions: Round your answer to two decimal places.
$6.25 - $6.20 = $0.05
$ 0.05 per hour
d. Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre?
Instructions: Enter only whole numbers for your answer. Enter a positive number after identifying profit or loss.
Wage to workers = 160 hrs x $6.20
= $992
Equiptment costs = $150 per month
Normal profit required = $50
Total cost = $992+ $150 +$ 50
= $1192
Total revenue per month = $1000
Profit = Total revenue per month - Total cost
= $1192-$1000
= -$192
The firm’s (choose one): loss per acre will be $ 192
e. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?
Instructions: Enter whole number for your answer.
$192 is the loss, so we have to deduct from the current wage per month of $992 which is $800 for 160 hrs.
So for 1hr = 800/160
= $5 per hour
$5
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