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Chapter 11: Problem 12

BigBiz, a local monopsonist, currently hires 50 workers and pays them \(\$ 6\) per hour. To attract an additional worker to its labor force, BigBiz would have to raise the wage rate to \(\$ 6.25\) per hour. What is BigBiz's marginal factor cost? a. \(\$ 6.25\) per hour b. \(\$ 12.50\) per hour c. \(\$ 18.75\) per hour d. \(\$ 20.00\) per hour

Short Answer

Expert verified
c. $18.75 per hour

Step by step solution

01

Calculate the total wage cost before hiring the extra worker

BigBiz is currently paying 50 workers at a wage rate of $6 per hour. We can calculate the total wage cost by multiplying the number of workers by the wage rate: Total Wage Cost = Number of Workers × Wage Rate Total Wage Cost = 50 × $6
02

Calculate the total wage cost after hiring the extra worker

To hire the additional worker, BigBiz would have to raise the wage rate to $6.25 per hour. After hiring the new worker, BigBiz will have 51 workers in total. Calculate the new total wage cost with the increased wage rate: New Total Wage Cost = (Number of Workers + 1) × New Wage Rate New Total Wage Cost = (50 + 1) × $6.25
03

Calculate the marginal factor cost

To find the marginal factor cost, we need to subtract the total wage cost before hiring the additional worker from the total wage cost after hiring the additional worker. This will show us how much more BigBiz has to spend to attract the additional worker: Marginal Factor Cost = New Total Wage Cost - Total Wage Cost Marginal Factor Cost = (51 × \(6.25) - (50 × \)6) Now let's compute the values to find the marginal factor cost: Total Wage Cost = 50 × \(6 = \)300 New Total Wage Cost = 51 × \(6.25 = \)318.75 Marginal Factor Cost = \(318.75 - \)300 = $18.75 By calculating the difference in wages, we find that the marginal factor cost for BigBiz to hire an additional worker is: c. $18.75 per hour

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Most popular questions from this chapter

The owner of a restaurant will hire waiters if the a. additional labor's pay is close to the minimum wage. b. marginal product is at the maximum. c. additional work of the employees adds more to total revenue than to costs. d. waiters do not belong to a union.

In which of the following market structures is the firm not a price taker in the factor market? a. Oligopoly b. Monopsony c. Monopoly d. Perfect competition

The extra cost of obtaining each additional unit of a factor of production is called the marginal a. physical product. b. revenue product. c. factor cost. d. implicit cost.

A monopsonist's marginal factor cost \((M F C)\) curve lies above its supply curve because the firm must a. increase the price of its product to sell more. b. lower the price of its product to sell more. c. increase the wage rate to hire more labor. d. lower the wage rate to hire more labor.

If demand for a product falls, the demand curve for labor used to produce the product will shift a. leftward. b. rightward. c. upward. d. remain unchanged.
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