Question

In: Economics

You have a choice: Work at the marketing agency for $15 per hour, for however many...

You have a choice:

  1. Work at the marketing agency for $15 per hour, for however many hours you'd like
  2. Or sell software apps at $5 per app

Note: you're indifferent about the two tasks, all you care about is making money

Given the following Table:

Hours per Day

Total Software

Selling Software

Apps Sold

0

0

1

10

2

18

3

24

4

29

5

33

6

36

7

38

8

39

Questions:

  1. Should you spend 3 hours selling software? Why?
  2. Should you spend 6 hours selling software? Why?
  3. Should you spend 8 hours selling software? Why?
  4. After which hour should you stop selling software? Why?
  5. What is the lowest price you’d be willing to sell your app at for the 1st hour? Why?
  6. What is the lowest price you’d be willing to sell your app at for the 3rd hour? Why?
  7. What is the lowest price you’d be willing to sell your app at for the 7th hour? Why?

Solutions

Expert Solution

Hours Total Product Marginal Product of Apps Marginal Revenue Product
0 0
1 10 10 50
2 18 8 40
3 24 6 30
4 29 5 25
5 33 4 20
6 36 3 15
7 38 2 10
8 39 1 5

The company should sell software until Marginal Revenue Product of software sold (MRP) is greater than or equal to the total wages paid.

At 3 hours MRP is $30 and wages paid is 3*15 = $45. Since MRP is less than wage rate , so it would not be wise to spend 3 hours selling software

At 6 hours the MRP is $15 and wages paid is $15 * 6 = $90. Since MRP is less than wages paid , so it is not wise to spend 6 hours selling software.

At 8 hours the MRP is $5 and wages paid is $15 * 8 = $120. Since MRP is less than wages paid so it is not wise to spend 8 hours for selling software.

The organization should stop selling software after 2 hours. Until 2 hours the MRP is greater than wage rate i.e ( 50 > 15 , 40 > 30 respectively for 1 and 2 hours) After 2 hours Wages exceeds the MRP.

Lowest price for 1 hour will be equivalent to the wages paid i.e $15. If organization goes below this for selling app then it will incur losses because MRP >= Wages

Lowest Price for 3 hour will be $15 * 3 = $45. If the organization goes below this price for selling app it will incur losses. (MRP should be greater than or equal to wages paid)

Lowest price for 7th hour will be $15 * 7 = $105. Again MRP should be equal to or greater than wages paid. If goes below this price then wages paid will be more but marginal revenue product of additional software sold will be less thus resulting into losses.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

You have developed a self-service kiosk capable of serving about 15 clients per hour. You have...
You have developed a self-service kiosk capable of serving about 15 clients per hour. You have been told that the average rate of customers using this kiosk is about 10 customers per hour. You also know that the number of customers who approach the kiosk per hour follows the Poisson distribution. 1. Write out the pmf of the Poisson RV in this case and solve for 20 customers approaching the kiosk. 2. Use an R function to find a probability...
You have two hourly contract employees who work for you. They both make $30 per hour....
You have two hourly contract employees who work for you. They both make $30 per hour. How much should you budget in labour costs for the year, based on the following assumptions; (i) Total working hours in a year (40 hours per week x 52 weeks) (ii) 10 holidays per year (8 hours per day) that you do not pay them for (iii) 10 days vacation per year (8 hours per day) that you do not pay them for (iv)...
You get paid by the hour and can decide how many hours to work. You are...
You get paid by the hour and can decide how many hours to work. You are planning to fly to California. One roundtrip ticket costs $400 but requires changing planes in Chicago and will take 8 hours each way. The other ticket costs $500 for nonstop flights that take 5 hours each way.                                                                       Suppose you think that working and sitting in airports are equally pleasant or unpleasant activities. If you earn $10 an hour, which ticket should you buy?...
Suppose an ad agency claims that likes per hour of their ad is not equal to...
Suppose an ad agency claims that likes per hour of their ad is not equal to 7 likes, on average. Several of their employees do not believe them, so a manager decides to do a hypothesis test, at a 5% significance level, to persuade them. She collects data for 19 hours and works through the testing procedure: H0: μ=7; Ha: μ≠7 x¯=6.2 σ=0.9 α=0.05 (significance level) The test statistic is z0=x¯−μ0σn√=6.2−70.919√=−3.87 The critical values are −z0.025=−1.96 and z0.025=1.96. Conclude whether...
You have two medical assistants (MAs) who earn $15 per hour at your medical practice. When...
You have two medical assistants (MAs) who earn $15 per hour at your medical practice. When you hire a new MA, you discover that the current market pays $16 per hour for medical assistants. Respond to the following discussion points in relation to equity conflicts and compensation: • State what you would offer the new MA and provide your reasons. • Discuss the implications of your decisions on internal and external equity. • Evaluate the changes, if any, you would...
It is summer of 2021, you have not been able to find work, however a vaccine...
It is summer of 2021, you have not been able to find work, however a vaccine for COVID – 19 is now in widespread use, yourself included. As a clever forward-looking business student, you have decided to get experience by starting and operating your own business, a lemonade stand you have named “bora bora”. In your planning you have identified that there is potential to build a sustaining company, and as such you set up an accounting system and formal...
After graduating, you start work as a management consultant. You are paid $150 per hour: One...
After graduating, you start work as a management consultant. You are paid $150 per hour: One morning before work, you decide to buy a new car. You know the exact model you want, and you know that in your area the price ranges from $35, 500 to $36, 500 with the average price you can expect to get being $36,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price.  ...
What if you got a pay raise where you work of $1 dollar per hour. How...
What if you got a pay raise where you work of $1 dollar per hour. How much of that extra money would you spend and how much would you save? What would be your MPC based on this? If Jeff Bezos got an extra $1 million dollars how much do you think he would spend and how much would he save? What would be his MPC? Is it greater or less than yours? Why? What are the implications for tax...
Factory workers at a company are paid a wage of $15 per hour. In addition, the...
Factory workers at a company are paid a wage of $15 per hour. In addition, the company pays benefits (vacation leave, sick leave, health insurance, etc.) equal to 75% of a worker’s base wage for a 40-hour week. Workers are paid 1.5 times the hourly rate for any overtime hours worked in excess of 40 hours during a week, but no additional benefits are paid for overtime work. a) How much wages will a worker receive for working 40, 42,...
Factory workers at a company are paid a wage of $15 per hour. In addition, the...
Factory workers at a company are paid a wage of $15 per hour. In addition, the company pays benefits (vacation leave, sick leave, health insurance, etc.) equal to 75% of a worker’s base wage for a 40-hour week. Workers are paid 1.5 times the hourly rate for any overtime hours worked in excess of 40 hours during a week, but no additional benefits are paid for overtime work. a) How much wages will a worker receive for working 40, 42,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT