Posted by Karen on .
Suppose George is making $18 an hour installing electronic chips in hand held computers. Would you offer to work for $8 an hour to get you the job? Why might a profit-maximizing employer turn down you offer?
This question is posted twice, see also,
The employer is seeking to maximize profits, generally expressed as revenues - costs. The employer may presume the total output will also shrink by opting for the lower hourly rate, therefore eating into his/her profits.
i.e. if George produces $90 in revenue an hour and costs $18, this is a profit of $72. however, if you produce $50 in revenue per hour at a cost of $8, this is only a profit of $46.
And/or you are underqualified based on your ability to work for less than half the going price.
english Wikipedia for article called, Maximizing_revenue_method
I used total rev - total cost method.
The employer also has to train you and hope you eventually attain George's speed, lowering their average profit via lower average revenue, for the short term. If you can match George's ratio of revenue to cost (5:1 above), then you would be worth hiring to work alongside. But you would be hard pressed to replace him.