Question
I am working on this exercice, have answered questions a and b but am blocked for c and d Any tip or advice please. Thank
I am working on this exercice, have answered questions a and b but am blocked for c and d Any tip or advice please. Thank you in advance. 2. (15) Suppose you manage a business that produces high end dog food. Your business produces 3,000 dog food cans per day, and can sell all cans at $2.00/can regardless of how much is produced. Your firm currently employs 20 workers, each of whom earns $15/hour and work 8 hours per day. Inputs, like the meat for the food and the metal for the can, cost $1.00/can. Your overhead expenses, including rent, property taxes, insurance, etc., which doesnotvary with the number of cans produced, equals $250 per day.
- (3) Calculate your company's current daily profit.
Profit = Revenue - Expense
R = 2 * 3,000
R = $6,000
Expense = 250 + (20 * 15 * 8 ) + 1 * 3,000
Expense = 250 + 2,400 + 3,000
Expense = $5,650
Profit = Revenue - Expense
Profit = $350/day
You're considering whether to produce additional cans of dog food.In order to do so you would need to hire more workers, each of whom would be paid $15/hr. Material costs remain constant at $1.00/can. You determine that if you hire a 21st employee, your firm would produce an additional 200 cans per day, and that the number of additional cans from each additional worker would be decreasing by 40 (so a 22nd employee could produce an additional 160 cans per day, a 23rd employee could produce an additional 120 cans per day, etc.).
- (5) Calculate the marginal costs (change to total cost/change to output) associated with producing additional cans for employees 21 through 25. Note each worker works 8 hours/days.
If we consider MC as marginal cost, TC as total cost and Q as quantity produced, then
MC =TC/Q
TC20 =$5,650 (from previous question)
TC21= 250 + (21 * 15 * 8) + 1*(3,000+200)
TC21= $5,970
TC22= 250 + (22 * 15 * 8) + 1*(3,200+160)
TC22= $6,250
TC23= 250 + (23 * 15 * 8) + 1*(3,360+120)
TC23= $6,490
TC24= 250 + (24 * 15 * 8) + 1*(3,480+80)
TC24= $6,690
TC25= 250 + (25 * 15 * 8) + 1*(3,560+40)
TC25= $6,850
We can establish Q21 as number of output with 21 workers, Q22 respectively etc to Q25 as follows:
Q20 = 3,000
Q21 = 3,200
Q22 = 3,360
Q23 = 3,480
Q24= 3,560
Q25= 3,600
We can now calculate the MC following the formulaMC =TC/Qwith MC21 for 21 workers etc.
MC21 = (TC21 - TC20) / (Q21-Q20)
MC21 = (5,970 - 5,650) / (3,200 - 3,000)
MC21 = 320 / 200
MC21 = $1.6
MC22 = (6,250 - 5,970) / (3,360 - 3,200)
MC22 = $1.75
MC23 = (6,490 - 6,250) / (3,480 - 3,360)
MC23 = $2.0
MC24 = (6,690 - 6,490) / (3,560 - 3,480)
MC24 = $2.5
MC25 = (6,850 - 6,690) / (3,600 - 3,560)
MC25 = $4.0
c. (3) If you could still sell each can for $2.00, how many employees should you hire, how many additional cans should you produce, and what is your company's new daily profit?
d. (3) Suppose your company's fixed costs were $300 per day instead of $250 per day. What is the profit maximizing number of employees and what is your company's daily profit?
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