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Q) A project that requires 800 hrs of skilled labour. The workforce is already fully employed but more workers can be hired at a cost of $35 per hour. The current worker is paid $16 per hour on a project that earns a contribution of $9 per hour.
What is the relevant cost of labour included in project appraisal?
Can you please tell me how to answer this question?
They have two choices.
Either the employ more workers and it will cost $35 per hour, or alternatively they take workers off their existing work which will have an opportunity cost of 26 + 9 = $25 per hour.
They will choose the cheaper and so the relevant cost will be $25 per hour.
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