Question

In: Economics

Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if...

Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1300 in revenue. Each worker’s equipment costs the worker’s employer $235 per month to rent and each worker toils 40 hours per week for 4 weeks each month.

a. What is the marginal revenue product of hiring one low-skilled worker to clear woodland for one month? $.

b. How much revenue per hour does each worker bring in? $.

c. If the minimum wage were $8.03, would the revenue per hour in part b exceed the minimum wage? (Click to select)YesNo. If so, by how much per hour? $ per hour.

d. 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 $8.03 per hour, what will the firm’s economic profit or loss be per acre? The firm’s (Click to select)profitloss 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?

Solutions

Expert Solution

a) Number of hours in a month is 160 hours

The marginal revenue would be the revenue required to clear an additional acre of land which is $1300 ( we have assumed that it takes 1 month to clear 1 acre of land )

b) Revenue per hour the worker bring in is the marginal revenue / the hours worked in a week by a worker

= $1300/ 160 = 8.125

so $8.125 is the revenue per hour of a worker

c)yes the wage in part b) exceeds the minimum wage

If the minimum wage was 8.03 , then the wage in b) exceeds this wage by 8.125-8.03 = $0.095 per hour

d) Employer's cost is given by the normal profit of $50 , the minimum wages given to the worker p[er month and the cost of renting the equipment

so cost = $50+160*8.03+$150 = $1484.8

we have the revenue as $1300

profit is given by revenue- cost = $1300-$1484.4 = (-)$184.8

so the frm incurs a loss of $184.8 per acre

For finding out the minimum wage where the firm makes 0 profits we need to loiok at the break even point

so firstly we will remove the additioonal cost we have of normal profits and renting from revenue

whcih is $1300-$50-$150 = 1100

now we are given the toatl hours of work

so wage per hour is total wages/ hours of work

= 1100/160= $6.875

so minimum wage should be $6.875 for firm to make 0 profits .

Rahul Sunny answered 2 years ago
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