You Have Been Hired by the No Hassle Collection Agency

question 141

Multiple Choice

You have been hired by the No Hassle Collection Agency to provide economic advice. The owner of the agency tells you that No Hassle's only variable input is the number of collection agents. The hourly wage for collection agents is $30.00. The marginal revenue product curve for collection agents reaches its maximum at five workers with a marginal revenue product of $34.00. What advice would you give this firm?

• A) Hire five collection so as to maximize profits.
• B) Shut down immediately, as the firm is not able to cover all of its variable costs.
• C) Decrease the wage rate paid to collection agents so that their marginal revenue product will decrease.
• D) Hire collection agents until the marginal revenue product is equal to the wage-which will occur when more than five agents are employed.

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Definitions:

Direct Expenses

Costs that can be directly traced to producing specific goods or services and can vary with the level of production.

Indirect Expenses

Expenses that cannot be directly linked to the production of goods or services, such as administrative salaries and utilities.

Contribution Margin

The Contribution Margin represents the amount of revenue from sales that exceeds variable costs, contributing to covering fixed costs and generating profit.

Sales

The total amount of revenue generated by the selling of goods or services by a company within a specific period.