Linda's Autoplex performs oil changes on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of an oil change is $10. The marginal productivity of the last worker that Linda hired was 1.5 oil changes per hour. What is the maximum hourly wage that Linda was willing to pay the last worker hired?
A)$10
B)$15
C)$20
D)$30

Question

Quizplus · Accepted Answer

In a competitive market, a profit-maximizing firm will hire workers up to the point where the marginal revenue product of labor (MRPL) is equal to the wage rate. In this case, the marginal revenue product is equal to the marginal productivity of the last worker hired multiplied by the price of an oil change. Since the price of an oil change is not given, we cannot calculate the exact MRPL. However, we can use the marginal cost of an oil change as an approximation of its price. Therefore, the MRPL of the last worker hired is 1.5 oil changes per hour * $10 = $15/hour. This means that Linda would be willing to pay the last worker up to $15 per hour, which is the maximum hourly wage that she would pay. Therefore, the answer is B.

Linda's Autoplex Performs Oil Changes on Automobiles, Light Trucks, and Sport