Question

Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm's MRP for bricklayers is \(\$ 22.25\) per hour for each of the first seven bricklayers, S18.50 for an eighth brick layer, and \(\$ 17.75\) for a ninth bricklayer. Given that she is a price taker when hiring bricklayers, how many bricklayers will she hire if the market equilibrium wage for bricklayers is \(\$ 18.00\) per hour? a. Zero. b. Scven. c. Eight. d. Ninc. e. More information is required to answer this question.

Short answer

Brenda will hire eight bricklayers.

Step-by-step solution

Define MRP and its Role

The Marginal Revenue Product (MRP) is the additional revenue Brenda's firm earns from hiring one more bricklayer. She will keep hiring as long as the MRP is greater than or equal to the wage.

Compare MRP with the Wage for First Seven Bricklayers

For the first seven bricklayers, the MRP is \( \\( 22.25 \) per hour, which is greater than the wage of \( \\) 18.00 \). Therefore, hiring these bricklayers is profitable.

Evaluate the Eighth Bricklayer

The MRP for the eighth bricklayer is \( \\( 18.50 \), which is still greater than the wage of \( \\) 18.00 \). Brenda should hire the eighth bricklayer as well.

Assess the Ninth Bricklayer

The MRP for the ninth bricklayer is \( \\( 17.75 \), which is less than the wage of \( \\) 18.00 \). Hiring the ninth bricklayer would result in a loss, so Brenda should not hire this bricklayer.

Key concepts

Labor Economics

Labor economics is the study of how labor markets function and how labor is supplied and demanded. This topic looks at the behavior and decisions of employers and employees, examining factors such as wages, employment, and productivity. Understanding labor economics can help both employers and workers make informed decisions. In labor economics, the demand for labor is largely driven by the employer's need to hire workers to produce goods or services. This demand is influenced by different economic factors, such as the productivity of workers and the revenue they can generate. On the supply side, workers decide where and how much to work based on their preferences, skills, and the wages offered. A key component of labor economics is the relationship between wages and the Marginal Revenue Product (MRP) of a worker, which measures the additional income generated by employing one more unit of labor.

Market Equilibrium

Market equilibrium occurs when the quantity of labor demanded by employers equals the quantity of labor supplied by workers at a specific wage rate. In a perfectly competitive market, this equilibrium wage ensures that there is neither a shortage nor a surplus of workers. For Brenda, the market equilibrium wage is $18.00 per hour. This means that at this wage, the number of bricklayers who want to work equals the number she wants to hire. If the wage were higher, fewer bricklayers would be hired. Conversely, if the wage were lower, fewer bricklayers would want to work. Understanding market equilibrium helps Brenda determine how many bricklayers to hire in order to balance her labor costs with the MRP they provide. In this scenario, the equilibrium wage helps her identify the most cost-effective number of employees she should employ to maximize her profit.

Profit Maximization

Profit maximization is the primary goal for businesses, including Brenda's construction company. It involves making decisions that lead to the highest possible financial gain. For Brenda, profit maximization means hiring the optimal number of bricklayers, where her revenue from the additional labor outweighs the costs involved. The concept of Marginal Revenue Product (MRP) is used to guide these decisions. Brenda seeks to hire bricklayers as long as their MRP is greater than or equal to the market wage. This ensures that each additional bricklayer contributes positively to her profits. By comparing the MRP of each additional bricklayer to the hourly wage rate, Brenda can evaluate whether hiring another worker will increase her profits. This allows her to ensure that her business operations are both efficient and profitable.

Hiring Decisions

Hiring decisions are crucial for businesses to operate efficiently and profitably. For Brenda's construction company, these decisions involve determining how many bricklayers to hire based on the differences between their Marginal Revenue Product (MRP) and the market wage. Brenda assesses the MRP of each additional bricklayer and compares it to the given wage of $18.00 per hour:

• For the first seven bricklayers, Brenda hires them as their MRP is $22.25, more than the wage, making them profitable hires.
• The eighth bricklayer, with an MRP of $18.50, is still profitable since this value exceeds the wage.
• However, the ninth bricklayer has an MRP of $17.75, which is less than the wage, indicating an unprofitable hire.

Brenda's hiring decisions are based on maximizing profit while ensuring the cost per employee does not exceed the revenue they contribute. This analysis helps Brenda maintain her company's profitability and efficiency.