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  • Derivation of the Price-Setting Real Wage Formula

Calculating the Implied Real Wage

A manufacturing firm determines the price of its product by applying a 20% markup over its marginal cost. The firm's marginal cost is solely determined by the nominal wage it pays its workers divided by their average productivity. If the average worker produces 50 units of output per hour, what is the real wage (measured in units of output per hour) that is consistent with the firm's pricing decision? Show the key steps in your calculation.

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