Question

Made the right way with fresh ingredients, boeuf bourguignon (look it up!) is the best thing ever. Your friend Ella Marija Lani Yelich-O'Connor has abandoned her music career to open a bistro, which specializes in boeuf bourguignon and other French food, including crème brulee. She has done some market research and finds that your neighbors value boeuf bourguignon dinners according to the following schedule:

Servings	MU boeuf bourguignon
1	$60.00
2	$58.00
3	$56.00
4	$54.00
5	$52.00
6	$50.00
7	$48.00
8	$46.00
9	$44.00
10	$42.00
11	$40.00
12	$38.00
13	$36.00
14	$34.00

1. Production. Ella makes boeuf bourguignon using equipment that she rents for $75 and beef, potatoes, wine and other ingredients that cost $12.50 a serving. (Note that she signed a lease and pays the rent regardless of how many dinners she serves.) She hires workers at $25 each and finds that they produce servings according to the following schedule:

Servings	Total Workers
1	0.30
2	1.00
3	1.90
4	3.00
5	4.30
6	5.80
7	7.50
8	9.40
9	11.50
10	13.80
11	16.30
12	19.00
13	21.90
14	25.00

a.      (1 points) Calculate and graph the marginal cost of each serving. (Use a spreadsheet show all your calculations!) Why does the MC curve have the slope (up, down, or flat) that it does?

b.     (2 points) Calculate and graph the marginal cost of each serving if workers become more productive so each serving can be made with only 70% as much labor. Show your calculations! Calculate and graph marginal cost if workers suffer a 30% pay cut with the old productivity. Compare the effect on MC of the productivity increase with the pay cut.

Answer 1

A)Let consider the given problem here “Serving = Y” and the “worker =L” is given in the question. Consider the following table showingthe “MPL”, MC of making “boeuf bourguignon”.

Where “MPL” is “?Y/?L” and “MC=W/MPL”. So, here the MPL isdecreasing and the wage rate “W” is constant, => “MC” the ratioof “W” and “MPL”, => “MC” is upward sloping.

B) Now, as the marginal productivity increases, => to producethe same amount of “Y”, the labor requirement decrease by “30%”,=> the same “Y” can be produced by using “70%” of the initiallabor requirement. Consider the following table shows thecombination of “Y” and “L” under the given situation and thecorresponding MC.

Here the new labor “L’” is “70%” of the old labor “L” and "MC_2"be the MC under this situation.

Now, suppose “L” remain same but “W” decrease by “30%”, =>the wage will be “0.7*25”. So, under this situation the “MC” isgiven below in the following table.

So, if we compare these cases then we will find that in both thecases the “MC” is same , => “30%” decrease in “W” and “30%”decrease in labor requirement is same, since in both the cases wewill get same MC, => both have same effect on MC.