<p>this simple example is useful for understanding the importance of whether wages are flexible or not</p><p>Fill in the table below and figure out how many workers I should hire to maximize profits. The current (given) nominal wage (W) = $80 and the given price of the output (P) = $10.</p><p>TABLE 1</p><p>N Y MPN MRPN Marginal Profit Total Profit 0 0 - - - 0</p><p>1 10 10 $100 20 20</p><p>2 25 15 $150 70 90</p><p>3 36 11 $110 30 120</p><p>4 45 9 $90 10 130</p><p>5 52 7 $70 -10 120</p><p>6 55 3 $30 -50 70 real profits = 130/10 = 13 real wages = 80/10 = 8 output = 45 Let's change prices to 12.5 - a 25% increase</p><p>0 0 MPN MRPN Marginal Profit Total Profit</p><p>1 10 10 $125 45 45</p><p>2 25 15 107.5 152.5 $187.5 3 36 11 $137.5 57.5 210</p><p>4 45 9 $112.5 32.5 242.5</p><p>5 52 7 $87.5 7.5 250</p><p>6 55 3 $37.5 -42.5 207.5 real profits = 250/12.5 = 20 real wages = 80/12.5 = 6.4 output = 52</p><p>Let's change wages to $100 - a 25% increase</p><p>0 0 MPN MRPN Marginal Profit Total Profit</p><p>1 10 10 $125 25 25</p><p>2 25 15 87.5 112.5 $187.5 3 36 11 $137.5 37.5 150</p><p>4 45 9 $112.5 12.5 162.5</p><p>5 52 7 $87.5 -12.5 150</p><p>6 55 3 $37.5 -62.5 87.5 real profits = 162.5/12.5 = 13 real wages = 100/12.5 = 8 output = 45</p>