You are starting up “Student Painter ‘R Us’” which paints houses in your local a
ID: 1113825 • Letter: Y
Question
You are starting up “Student Painter ‘R Us’” which paints houses in your local area. You have painted before, have some experience with the business, and have the capital (ladders and paint truck). A house takes one worker one 10 hour day to paint, and you receive the market price for a painted house of $300. By adding additional student painters to your crew you can increase your output of painted houses as
Note that a unit of labour is one 10 hours day of painting by one student. You may covert hourly wages below to a daily wage by multiplying by 10 in all calculation.
1If the market wage for a student painter is $15 per hour or $150 per day of painting, how many student painters should you hire (including yourself) at the market wage? If the lease cost of your capital (ladders and truck) is $175, what is your profit? What is your profit from hiring either one more or one fewer student painter?
Painters Painted Houses 1 1.00 2 1.71 3 2.28 4 2.80 5 3.23 6 3.64Explanation / Answer
1.
As per the data in the above table, 4 workers including me should be hired, because at the fifth worker, marginal cost becomes higher than the marginal cost. It will negatively affect the profit. Hence, 4 workers including me should be hired at the market wage.
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At this level,
Net profit = Revenue – cost = 840 - (175+ 4*150) = $65
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If I hire one less worker,
Net profit = 684-(175+3*150) =$59
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If I hire one more worker,
Net profit = 969 - (175+5*150) = $44
Painters Painted Houses Revenue Maginal Revenue fixed cost Variable cost (labor cost) Total cost Marginal cost Net profit = Total reveneu - total cost 1 1 300 175 150 325 -25 2 1.71 513 213 175 300 475 150 38 3 2.28 684 171 175 450 625 150 59 4 2.8 840 156 175 600 775 150 65 5 3.23 969 129 175 750 925 150 44 6 3.64 1092 123 175 900 1075 150 17Related Questions
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