Question

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $20. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?

a. There is insufficient information to answer this question.
b. $20
c. $40
d. $10

Answer 1

Answer:

option (c) $40

Explanation:

Data provided in the question:

The marginal cost of installing a tire = $20

The marginal productivity of the last worker = 2 tires per hour

Now,

The maximum hourly wage that Diane was willing to pay the last worker hired

= marginal cost of installing a tire × marginal productivity of the last worker

= $20 × 2

= $40

Hence,

The answer is option (c) $40