The real wage a firm pays its employees measures the number of units of output the firm must sell in order to pay an employee's dollar wage.
a. If employees at a whipped cream factory earn $21 per hour, and whipped cream sells for $3 per carton, determine the real wage the workers are being paid. In what units is your answer expressed?
b. Express the real wage more generally as a function of the dollar wage and the firm's output price.
c. To maximize profits, a firm should hire labor until the marginal revenue product of labor equals the dollar wage. Show that a competitive firm should hire workers until the marginal product of labor is equal to the real wage.