Question

You are the manager of a large but privately held online retailer that currently uses 17 unskilled workers and 6 skilled workers. Your company pays its unskilled workers the minimum wage of $10.25 per hour and pays the skilled workers $15 per hour. The government passes new legislation increasing the minimum wage from $10.25 per hour to $11 per hour. What is the new optimal mix of skilled and unskilled workers for you (the wages paid to skilled workers does not change)?

Answer 1

Here,

Initially,

Pay to unskilled labor = $10.25

Pay to Skilled Labor = $15

Number of unskilled labors = 17

Number of skilled labors = 6

Total labors = 17+6 = 23

So total labor cost = 17*10.25 + 6*15 = $264.25

Now new cost of unskilled labors = $11

Cost of skilled labors = $15

Now if U unskilled labors and S skilled labors are used, than

11*U + 15*S = 264.25

So filling table we have,

For S = 1

U = 22, for optimum use

S	U	Total Cost
1	22	257
2	21	261
3	19	254

So optimum is S=2 and U =21