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BUSN 6120 Homework 4 Problems




Question;Problem 1Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00per hour. Based on this information, fill in the table below.NumberofWorkerHours050100150200250300350MarginalProduct040090013001600180019001950FixedCostVariableCost--TotalCostMarginalCost20,00020,25020,50020,75021,00021,25021,50021,750OutputAverageVariableCost----Problem 2Number OfWorkers012345678910Output050110300450590665700725710705The table above shows the weekly relationship between output and number of workersfor a factory with a fixed size of plant.a. Calculate the marginal product of labor.b. At what point does diminishing returns set in?c. Calculate the average product of labor.d. Find the three stages of production.AverageTotalCost--Problem 3Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs ofNew York City. Recently, a large chemical firm offered him a position as a seniorengineer designing plants for its Asian operations. (Mr. Lee has a masters degree inchemical engineering.) His salary plus benefits would be $95,000 per year. A recentannual financial statement of his stores operations indicates the following:____________________________________________Revenue$625,000Cost of goods sold325,000Wages of workers75,000Taxes, insurance, maintenance, anddepreciation on building30,000Interest on business loan (10 %)5,000Other miscellaneous expenses15,000Profit before taxes$175,000____________________________________________If Mr. Lee decides to take the job, he knows that he can sell the store for $350,000because of the goodwill built with a steady clientele of neighborhood customers and theexcellent location of the building. If he would still hold onto the building, he knows hecould earn a rent of $50,000 on this asset. If he did sell the business, assume he woulduse some of the proceeds from the sale to pay off his business loan of $50,000. He couldthen invest the difference of $300,000 (i.e., $350,000 - $50,000) and expect to receive anannual return of 9 percent. Should Mr. Lee sell the business and go to work for thechemical company?In answering this question, also consider the following information:a. In his own business, Mr. Lee works between 16 and 18 hours a day, 6 days a week. Hecan expect to work between 10 and 12 hours a day, 5 days a week, in the chemicalcompany.b. Currently, Mr. Lee is assisted by his wife and his brother, both of whom receive no salarybut share in the profits of the business.c. Mr. Lee expects his salary and the profits of his business to increase at roughly the samerate over the next 5 years.


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