Final answer:
An acceptable rate of pay must consider employer's cost, external equity, and internal equity. A firm maximizes profit in a competitive market when the value of marginal product equals the market wage, ensuring they pay wages competitively without excessive cost.
Step-by-step explanation:
Each employee must be assigned a rate of pay that is acceptable in terms of employer's cost, external equity, and internal equity. Employer's cost refers to the ability of the business to pay wages without adversely affecting its financial position. External equity means the wages are competitive with what other employers pay for similar jobs in the market, ensuring that the firm can attract and retain qualified employees. Internal equity ensures that pay rates for all positions in an organization are fair and proportional, reflecting each job’s relative worth and employees' skills within the company.
Keeping these factors in balance is crucial for maintaining employee satisfaction and productivity, which in turn affects a firm’s profitability and sustainability. In a perfectly competitive labor market, the firm's profit maximizing level of employment occurs when the value of the marginal product of labor equals the going market wage, here given as $12. This determines how much labor the firm should employ to maximize profit without incurring excessive employer costs.