Question

In 1730. Nicholas Bayard was deciding to open the first sugar refining factory. He has to buy machines which cost $1.000 dollar per hour and hire 100 workers. This factory produced 2.000 tons of refined sugar per hour a) After he opens his factory, he needs to hire workers from the rural area. In the rural area, workers work on the farm land and make $4 dollar per hour. The living cost in the rural area is only $1. The cost of living near his factory is $7. What is the minimum wage he has to pay in order to attract workers from the rural area?(4p) b) What is the average cost of producing a ton of sugar in a factory? (4p) c) Sugar industry is perfectly competitive. What is the price of a ton of sugar?(4p)

Answer 1

Answer a) Minimum wage = $10

Explanation: Earning per hour in rural area = $4

Cost of living per hour in rural area = $1

Savings per hour in rural area $(4-1) = $3

Cost of living per hour near factory= $7

Minimum wage per hour to keep the same saving = cost of living + saving = $ (7+3) = $10

Answer b) Average cost or producing 1 ton sugar =$1

Explanation:

Cost of machines per hour= $1000

Minimum cost of workers per hour= $10 x$100 = $1000

Total cost per hour =$1000+$1000 = $2000

Tons of sugar produced per hour =2000

Cost per ton = Total cost/Tons of sugar = 2000/2000 = $1

Answer c) Price of 1 ton of sugar =$1

Explanation: In a perfectly competitive market, the price is equal to the marginal or average cost.