Question

Allison is debating about hiring Jim for a new position at her firm producing computer software. She estimates that Jim will add an additional $500 of revenue a day to her firm.

What is the maximum wage at which Allison would be willing to hire Jim?

Answer 1

Allison can pay Jim up to but not exceeding the $500 of daily additional revenue he is expected to generate. However, to ensure profitability, she should offer a wage lower than this amount when considering additional employment costs.

Step-by-step explanation:

The maximum wage that Allison would be willing to hire Jim for can be calculated based on the additional revenue Jim is expected to generate. If Jim is projected to add $500 of revenue per day, Allison would aim to pay him less than this amount to ensure her firm remains profitable. The exact wage she can offer will also need to cover any additional employment costs, such as taxes and benefits, but should not exceed the $500 daily revenue contribution.

For instance, if Allison decides to follow the principle of profit maximization, as in the case with the widgets, she would pay Jim up to, but not more than, the revenue he generates. In a scenario where there are no additional costs, the maximum daily wage she could offer Jim would be exactly $500. However, realistically, to maintain profitability, she would need to offer a wage that is lower than this to account for other costs and desired profit margins.