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29 May, 18:37

Acme, Inc., supplies rocket ships to the retail market and hires workers to assemble the components. A rocket ship sells for $35,000, and Acme can buy the components for each rocket ship for $25,000. Wiley and Sam are two workers for Acme. Sam can assemble 1/5 of a rocket ship per month and Wiley can assemble 1/10. If the labor market is perfectly competitive and rocket components are Acme's only other cost, how much will Sam and Wiley be paid?

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  1. 29 May, 21:15
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    Sam payment=$1,000

    Acme payment=$500

    Explanation:

    In a perfectly competitive labor market, the cost of labor is determined by the market as opposed to the companies. This means that each laborer will be paid according to his/her productivity.

    Step 1: Calculate profits per unit

    Profit=sales revenue-cost of goods

    where;

    sales revenue=$35,000

    cost of goods sold=$25,000

    replacing;

    Profit = (35,000-25,000) = $10,000

    Step 2: Determine share of profit for Sam and Wiley

    Sam payment=level of productivity per ship*profit

    where;

    level of productivity per ship=1/5

    profit=$5,000

    replacing;

    Sam payment = (1/5) * 5,000=$1,000

    Acme payment=level of productivity per ship*profit

    where;

    level of productivity per ship=1/10

    profit=$5,000

    replacing;

    Acme payment = (1/10) * 5,000=$500
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