The question
Name: ______________________ Date: ____________ A hiring table at a bicycle repair shop: a lower wage, a higher price and derived demand (5 points)
Spokewell Cycles (invented) repairs bicycles and sells each repair for $4 in a perfectly competitive market. It hires mechanics in a perfectly competitive labor market at a wage of $30 a day. The table shows the number of repairs it completes each day with different numbers of mechanics.
Data
Mechanics and repairs at Spokewell Cycles
| Number of mechanics | Total repairs per day |
|---|---|
| 0 | 0 |
| 1 | 10 |
| 2 | 24 |
| 3 | 34 |
| 4 | 40 |
| 5 | 43 |
(A) Calculate the marginal revenue product of the fourth mechanic. Show your work. [1 point]
(B(i)) The market wage for mechanics falls to $20 a day. Identify the number of mechanics Spokewell now hires to maximize profit. [1 point]
(B(ii)) Explain your answer to B(i) using marginal revenue product and marginal resource cost. [1 point]
(C) Instead, the wage stays at $30 a day, and the market price of a repair rises to $6. Identify whether Spokewell now hires the fourth mechanic, and explain using numbers. [1 point]
(D) Explain why Spokewell's demand for mechanics is called a derived demand. [1 point]