An employee's initial wage rate is determined by which of the following factors?

• A. The average wage paid in unrelated industries
• B. The firm's fixed costs
• C. The total revenue generated by the firm
• D. The marginal productivity of the employee in the labor market

Answer: (D)

Verified step by step guidance

1. Understand that an employee's initial wage rate is primarily influenced by the value they bring to the firm, which is captured by their marginal productivity. This means the additional output or revenue generated by employing one more unit of labor.
2. Recognize that the average wage paid in unrelated industries does not directly determine the wage rate in a specific firm, as wages are more closely tied to productivity within the relevant labor market.
3. Note that the firm's fixed costs are costs that do not change with the level of output or employment and therefore do not directly influence the wage rate offered to an individual employee.
4. Understand that total revenue generated by the firm is a broader measure and does not directly set the wage rate; instead, wages are linked to the marginal contribution of the employee to that revenue.
5. Conclude that the correct determinant of the initial wage rate is the marginal productivity of the employee, as firms pay wages based on the additional value each worker adds to production.