Question

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 $1,400 in revenue. Each worker’s equipment costs the worker’s employer $210 per month to rent and each worker toils 40 hours per week for 4 weeks each month.

Instructions: In part a, enter your answer as a whole number. In parts b-e, round your answers to 2 decimal places.

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 $8.70, would the revenue per hour in part b exceed the minimum wage?

   (Click to select)  Yes  No

If so, by how much 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 $8.70 per hour, what will the firm’s economic profit or loss be per acre?

The firm's  (Click to select) (loss  profit) 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?

Answer 1