4. Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled

Question

4. Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled forms. Parents who assemble their own tricycles benefit from the lower price of $45 per tricycle. "Full-service" customers enjoy the luxury of an assembled tricycle, but pay a higher price of $60 per tricycle. Both partially and fully assembled tricycle prices are stable. The company has observed the following relation between the number of assembly workers employed per day and assembled tricycle output:

Number of Workers Per Day Finished Tricycles

0 0

1 7

2 13

3 17

4 20

5 21

A) Construct a table showing the net marginal revenue product derived from assembly worker employment.

B) How many assemblers would Just Bikes employ at a daily wage rate of $100?

C) What is the highest daily wage rate Just Bikes would pay to hire three assemblers per day?

Explanation / Answer

a) The table showing net marginal revenue product derived from assembly worker employment has been drawn by using the following formula:

MRP = Change in revenue / change in unit of employment

b) As we can see from above table that employment of 5 workers is justified because less than that would be more than $100 which is wage rate.

c) To hire three assemlers, the company can pay $240 as wage for maximum.

Number of assemblers Finished Tricycles Price per finished tricycle TR = P* Unit MRP 0 0 60 0 0 1 7 60 420 420 2 13 60 780 360 3 17 60 1020 240 4 20 60 1200 180 5 21 60 1260 60

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