Reference no: EM132519732

Suppose that low-skilled workers employed in cutting Christmas trees can each clear .25 acre per month if they are each equipped with a chainsaw and shovel. Clearing one acre brings in $5,000 in revenue. Each worker's equipment costs the worker's employer $200 per month to rent and each worker toils 30 hours per week for four weeks each month.

a. What is the marginal revenue product of hiring one low-skilled worker to cut Christmas trees for one month?

b. How much revenue per hour does each worker bring in?

c. If the minimum wage were $8.50 per hour, would the revenue per hour in part b exceed minimum wage? If so, by how much?

d. Now consider the employer's total costs. These include the equipment costs as well as a normal profit of $200 per acre. If the firm pays each worker the minimum wage of $8.50 per hour, what will the firm's economic profit or loss be per acre?

e. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?