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You operate a shop that repairs TVs and VCRs. The going wage rate in a competitive...

You operate a shop that repairs TVs and VCRs. The going wage rate in a competitive market for skilled repair people is $18 per hour. Given the current demand for your services, the marginal revenue product of your repair people is $28 per hour. If you were to employ one more hour of a repair person's services you would: a). increase your profit by $28. b). increase your profit by $18. c). increase your profit by $10. d). not increase your profit at all.

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Answer #1

Wage rate = $18 per hour

Marginal revenue product , MRP = $28

Based on the given information , marginal revenue product i.e VMP= $28 and W=$18. Because VMP>W , therefore the owner should hire a repair man for 1 more hour. Thismeans that in order for the shop owner to increase profit, it must increase the quantity of labor employed. If the shop owner were to employ one hour of a repair services , he would increase profit by $(28-18)= $10. Hence, option(C) is correct.

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