Question

Initially, when a firm hires a fourth worker, its wage rate goes from $80 a worker to $90. The marginal revenue product of the fourth worker is $100. Then the government imposes a minimum wage of $90 a worker. If the firm now hires the fourth worker, its profits will

Answer 1

increase by $10.

Step-by-step explanation:

The marginal cost of hiring a fourth worker is already $90. This means that any price floor (minimum wage) imposed by the government will not affect this worker or the company because his/her wage was already equal to the new minimum wage.

The firm's profit = marginal revenue product - marginal cost = $100 - $90 = $10.