Question

The owner of a restaurant will hire waiters if the a. additional labor's pay is close to the minimum wage. b. marginal product is at the maximum. c. additional work of the employees adds more to total revenue than to costs. d. waiters do not belong to a union.

Short answer

In conclusion, the owner of a restaurant will hire waiters if the additional work of the employees adds more to total revenue than to costs (statement c), as it compares the additional revenue gained with the additional costs incurred when hiring a new employee.

Step-by-step solution

Statement a: Additional labor's pay is close to the minimum wage.

If the additional labor's pay is close to the minimum wage, this means that the cost of hiring waiters is relatively low. However, this statement alone doesn't provide enough information to determine the impact on revenue or productivity. Therefore, we cannot conclude that this condition alone would lead the owner to hire more waiters.

Statement b: Marginal product is at the maximum.

When the marginal product is at the maximum, this means that the additional waiter contributes the most possible to the restaurant's output (number of customers served, etc.). In economic terms, hiring a new employee provides the highest possible value at this point in terms of contribution to the overall output. This condition implies that there is a valuable return on hiring more waiters, which might lead the owner to hire more waiters.

Statement c: Additional work of the employees adds more to total revenue than to costs.

This statement suggests that hiring an additional waiter means an increase in the restaurant's total revenue compared to the additional costs incurred. In other words, the benefit of having an additional waiter outweighs the cost of hiring them. This condition is the most important to consider, as it is the most likely to lead the owner to hire more waiters.

Statement d: Waiters do not belong to a union.

Whether waiters belong to a union or not doesn't necessarily affect the restaurant's revenue or productivity as a direct factor. However, it might impact the cost of hiring and the flexibility of scheduling or dismissal. Since this statement doesn't provide enough information regarding the financial effects or productivity, we cannot conclude that this condition would lead the owner to hire more waiters. In conclusion, the most important condition to consider when deciding whether to hire more waiters is statement c, as it compares the additional revenue gained with the additional costs incurred when hiring a new employee.

Key concepts

Labor Economics

Labor economics is the study of the market dynamics concerning workers and employers. One key part of labor economics is to understand how much labor to employ, especially while dealing with varying conditions of cost and productivity.

In the context of hiring practices, especially in a restaurant setting, business owners evaluate specific factors:

• Labor costs: How much does it cost to employ an additional worker, such as a waiter?
• Labor supply: Are there enough available workers to meet the restaurant's demand for services?
• Impact on revenue: Will hiring an additional employee increase the total revenue more than it will increase costs?

By assessing these factors, especially in situations where the minimum wage might be the pay baseline, business owners make informed decisions to hire or not. Thus, labor economics provides the framework needed to make efficient employment choices that maximize profits.

Marginal Product

Marginal product refers to the additional output produced by hiring one more unit of labor, like another waiter. When the marginal product is at its maximum, each new employee contributes significantly to the overall service output of the restaurant.

Understanding the marginal product involves measuring:

• The number of additional customers served by one extra waiter.
• The overall improvement in service speed and quality leading to increased customer satisfaction and retention.

This metric is pivotal for determining the value added by each new employee, ensuring that hiring decisions maximize efficiency and output without unnecessary increases in labor costs.

Cost-Benefit Analysis

Cost-benefit analysis is a crucial tool used by business owners to determine if the benefits of hiring additional workers outweigh the associated costs. It examines whether the added revenue from one more employee exceeds the expense of hiring them.

Here's how a cost-benefit analysis might work in a practical sense:

• Additional Revenue: Calculate the increase in total sales or tips due to the efficiency gained by hiring another waiter.
• Additional Costs: Add up the new wages, training, and any other costs associated with a new hire.
• Comparison: Regularly compare these two figures to ensure that the benefits continue to outweigh the costs.

Through continuous assessment, business owners can decide when it is financially viable to add more staff, aligning their workforce with the restaurant’s operational and financial goals.