Question

The table below provides the production function for Danny’s Deliveries, a bicycle delivery service in an urban area. Danny’s operates in a perfectly competitive market and charges $20per delivery. Employees are equally proficient at riding a bicycle, and Danny is able to hire as many constant-quality (equally productive) delivery persons at the going market wage rate as he wants. Assume labor is the only variable input,Danny has fixed costs of $50per day, and Danny’s goal is to maximize profit.

ALSO, am confused on all questions, specifically #5. Does it mean in general at $100 or in reference to #4

TC TVC+TFC Profit MPL = AQ/AL MRPL VMPL TVC- Lx W #workers | Output/Day 20 30 4 40 38 Complete the table and fill in the blanks for numbers 1 -3 below assuming that the wage rate is $80 per day worker. Diminishing returns to labor set in when Danny hires the 2 Danny is hiring workers in a labor market that is 3.Applying the profit-maximizing hiring rule, Danny hires Fill in the blanks for numbers 4 - 6 below assuming that the wage rate increases to $100 per day 4.According to the profit-maximizing hiring rule, Danny should hire workers. workers his TC = and his profit- Danny's TR workers If Danny has fixed costs of $75 instead of S50 per day, he should hire

Answer 1

MP_L = delta Q/delta L, delta Q = MP middot delta L, Price = $20 Fixed cost (FC) = 50 diminishing returns is when MPL starts falling, from 3rd unit of Labor, thus when 3rd Labor unit is hired. this Labor market is perfectly Competitive at profit maximization, wages = VMPL Thus at Labor units equal to 5 So the profit maximization rule, so VMPL is greater than or equal to wages. So now wage is 100. Thus hire L equals to 4 TR, TC, profit is for L = 4 where profit is maximum when wages equal to 100. TR = 720, TC = 450, profit = 270. optimal level of employment = 4 workers Bcoz at eqm, VMPL > = wages, independent of fixed costs level

) diminishing returns is when MPL starts falling , from 3rd unit of Labor, thus when 3rd Labor unit is hired.

2) this Labor market is perfectly Competitive

3) at profit maximization, wages = VMPL

Thus at Labor units equal to 5

4.)So the profit maximization rule, so VMPL is greater than or equal to wages.

So now wage is 100.

Thus hire L equals to 4

5.) TR, TC, profit is for L=4 where profit is maximum when wages equal to 100.

TR = 720, TC = 450, profit = 270.

6) optimal level of employment = 4 workers

Bcoz at eqm, VMPL >= wages, independent of fixed costs level