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,
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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.
See also,
english Wikipedia for article called, Maximizing_revenue_method
I used total rev - total cost method.
^ irony.
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.
To answer the question, we need to compare the wages offered by George's current job and the potential offer of $8 an hour.
1. Calculate the wage difference:
George's wage: $18 per hour
Potential offer: $8 per hour
Wage difference: $18 - $8 = $10
2. Analyze the offer:
Offering to work for $8 an hour might initially seem like an attractive proposition since it is higher than the minimum wage in many places. However, it is important to consider that profit-maximizing employers make decisions based on their cost-benefit analysis.
3. Assess employer's perspective:
A profit-maximizing employer may turn down the offer for several reasons:
a. Opportunity cost: If George is an experienced and skilled worker, he likely completes tasks more efficiently, which ultimately saves the employer time and money. Hiring a less experienced worker at a lower wage might result in reduced productivity and increased training costs.
b. Retaining quality employees: Paying higher wages helps employers attract and retain skilled workers. If the employer acknowledges George's value as a productive employee, they may want to provide a competitive wage to keep him satisfied and prevent him from seeking employment elsewhere.
c. Market competitiveness: However, employers also consider the market rate for similar roles in the industry. If the going rate for George's job is higher than $8 per hour, the employer may find it difficult to attract and hire qualified candidates at such a low wage.
Based on these factors, a profit-maximizing employer might turn down the offer of $8 an hour because it could result in decreased productivity, difficulties in employee retention, and challenges in attracting qualified candidates.