Profitability Analysis under a Standardized Wage Policy
An industry has two representative firms. Firm A is a low-productivity firm where each of its 10 employees produces 5 units of output per day. Firm B is a high-productivity firm where each of its 10 employees produces 10 units of output per day. The market price for the output is $20 per unit for both firms. A new policy mandates a standardized wage of $120 per day for all employees in this industry. Based on this information, which firm will be unprofitable and likely forced to exit the market? Justify your answer by calculating the daily profit or loss for each firm.
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