Question

Acme, Inc., supplies rocket ships to the retail market and hires workers to assemble the components. A rocket ship sells for $35,000, and Acme can buy the components for each rocket ship for $25,000. Wiley and Sam are two workers for Acme. Sam can assemble 1/5 of a rocket ship per month and Wiley can assemble 1/10. If the labor market is perfectly competitive and rocket components are Acme’s only other cost, how much will Sam and Wiley be paid?

Answer 1

Sam and Wiley will be paid up to their respective contributions to Acme's revenue, which amounts to $2,000 for Sam and $1,000 for Wiley per month, but their actual pay may be less based on the going market rates for their labor.

Step-by-step explanation:

In order to understand how much Sam and Wiley will be paid by Acme, Inc., we must first calculate the value they create for the company. The profit Acme makes on each rocket ship is the difference between the selling price and the cost of components, which is $35,000 - $25,000 = $10,000. Now, Sam assembles 1/5 of a rocket ship per month, which means he contributes to $10,000/5 = $2,000 worth of value per month. Wiley, assembling 1/10 of a rocket ship per month, contributes $10,000/10 = $1,000 worth of value per month.

Given a perfectly competitive labor market, Acme will pay Sam and Wiley up to but no more than the value they contribute to the firm. Therefore, Sam's maximum monthly pay would be $2,000, and Wiley's would be $1,000. However, their actual pay may be less depending on the market rates for their labor.

It is important to note that in a real-world scenario other factors such as overhead, salaries, and operational costs would also need to be considered when determining wages; however, the question specifies to ignore these for simplicity.

Answer 2

Sam payment=$1,000

Acme payment=$500

Step-by-step explanation:

In a perfectly competitive labor market, the cost of labor is determined by the market as opposed to the companies. This means that each laborer will be paid according to his/her productivity.

Step 1: Calculate profits per unit

Profit=sales revenue-cost of goods

where;

sales revenue=$35,000

cost of goods sold=$25,000

replacing;

Profit=(35,000-25,000)=$10,000

Step 2: Determine share of profit for Sam and Wiley

Sam payment=level of productivity per ship×profit

where;

level of productivity per ship=1/5

profit=$5,000

replacing;

Sam payment=(1/5)×5,000=$1,000

Acme payment=level of productivity per ship×profit

where;

level of productivity per ship=1/10

profit=$5,000

replacing;

Acme payment=(1/10)×5,000=$500