Final answer:
The profit an incremental guest contributes to earnings is shown on the 'Margin After Variable Expense/Guest' line of the P&L. The concept is related to the value of the marginal product, which is fundamental in determining a firm's profit-maximizing level of employment in a perfectly competitive labor market.
Step-by-step explanation:
The line on the P&L that shows the amount of profit an incremental guest will contribute to earnings is the Margin After Variable Expense/Guest. This figure represents the additional revenue that one more guest contributes after accounting for the variable costs associated with serving that guest.
Understanding this concept involves grasping the value of the marginal product, which is the additional output generated by employing one more unit of labor.
The value of the marginal product (VMP) at each level of labor is essentially the additional revenue a firm generates from hiring one more worker. In a perfectly competitive labor market, a firm maximizes profit when the wage rate equals the value of the marginal product of labor.
Therefore, if the going market wage is $12, the firm will continue to hire more workers until the value of the marginal product of the last worker hired is also $12.
Understanding the concept of marginal product helps in identifying when diminishing marginal productivity sets in, which is when each additional worker contributes less to the total output than the previous one. This concept is crucial in determining the optimal level of labor employment for profit maximization in a firm.