Two employers made the following comments about a proposed increase in the federal minimum wage: Dillon Edwards, founder of Parlor Coffee: "[The increase] should definitely be [to] more than $$[\$ 8.75$$ an hour \(] \ldots\) It needs to be at least in double digits." Beth Fahey, owner of Creative Cakes: "If you raise the minimum wage ... I can't raise everybody. If I do, the price of a doughnut is going to be $$\$ 3$$ and nobody's going to buy it." Briefly explain for which employer the marginal revenue product of labor is likely to be greater. Source: Leslie Josephs and Adam Janofsky, "As Minimum Wages Rise, Smaller Firms Get Squeezed," Wall Street Journal, June \(11,\) \(2015 .\)

Step by step solution

01

Interpreting the Employers' Perspectives

The comments from both employers offers two diverging perspectives. Dillon Edwards, a coffee shop owner, supports an increase in minimum wage, suggesting a high marginal revenue product of labor. Beth Fahey, a bakery owner, opposes it, hinting at a lower marginal revenue product of labor. She is concerned that an increase would result in higher prices for her goods, suggesting her business has a tighter profit margin.

02

Understanding the Concept of Marginal Revenue Product of Labor

Marginal Revenue Product (MRP) of labor refers to the additional revenue a firm can generate by employing one additional unit of labor. If a unit of labor is generating a higher amount of additional revenue for the firm, it is likely that the firm would be capable of paying higher wages.

03

Identifying which Employer has Greater MRP of Labor

From the employers' comments, Dillon Edwards appears to have a higher marginal revenue product of labor. His willingness to support an increase in minimum wage suggests that he is seeing high returns from his employees' labor, thus he could afford to pay his employees more. On the other hand, Beth Fahey's concerns about raising wages suggest that the marginal product of her labor force is lower.

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