Optimal Input Level

question 43

Essay

Optimal Input Level. Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled forms. Parents who assemble their own tricycles benefit from the lower price of $40 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:

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?

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Definitions:

Dividends

Disbursements from a corporation to its shareholders, typically deriving from the company's profits.

Amortization

The gradual reduction of a debt or the cost of an intangible asset over a specific period of time through regular payments.

Net Income

The amount of earnings left over after all expenses and taxes have been subtracted from total revenue; a key indicator of a company's profitability.

Equity Method

An accounting technique used by a parent company to record its investments in subsidiaries or affiliates based on the equity stake's pro-rata share of net assets rather than the historical cost of the investment.