Quick Multi Choice Economics Question?

W

Whambo

New member
Fred's Auto Shop installs tires on automobiles, light trucks, and sport utility vehicles. He is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $10. The marginal productivity of the last worker that Fred hired was 2 tires per hour. What is the maximum hourly wage that Fred was willing to pay the last worker hired?

a.$5
b.$10
c.20
d.There is insufficient information to answer this question.

I guess I'm Not understanding the question. Mind Explaining it to me?

P.S. Thanks, And I always check best answer.
 
d. There is insufficient information to answer this question.

______________________________

What is the price that Fred charges for installing each tire?
What is the marginal costs for each worker?
 
In a competitive market marginal cost equals marginal revenue; basically the additional benefit from hiring that worker should be equal to how much you pay him. If you paid him more then you get out of him working you would be losing money, and if you're paying less then you would hire more workers (we assume all workers are the same here) since you would be making a profit.

So the marginal benefit of hiring that worker is $10/tire * 2tires/hr =$20/hr. So that's what he should get paid. So the answer should be c) 20.
 
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