Question

C-19 impact has hit the economy very hard, has such, Osama an enterprising young man, is looking for opportunities to make some money that he can use towards a future purchase of a brand-new surface pro. He needs to raise $100,000.00 to buy the device. His plan is to work for just 10 weeks of the total vacation time. Being a gregarious young man, Osama also plans to spend quality time hanging out with his friends. Osama explores the opportunities for work that are available to him and settles on the following options:

Option 1: Stable employment in Giftland department store. He will earn $15,450.00 per week for supervising the floor. The work week is Monday to Friday and the hours of work are from 9AM to 4:30PM, with a one-hour lunch break in the company’s cafeteria.

Option 2: Osama who is also an avid baker, can make mini-cupcakes and sell these in one of the mall’s food court owned by his friend. The price of a cupcake is G$300. However, in order to use his mom’s oven to make his cupcakes he will have to pay her $790 per day. It will take Osama 5 hours per day to make and sell any number of cupcakes up to 37 (per day). The food court operates 7 days a week. The variable costs to acquire ingredients attached to the production of cupcakes are shown below:

Quantity of cupcakes  5      15     23     28     31     34     36     37

Variable Cost            800 1500 2200 3000 3600 4300 4900 5000

Questions:

1. (a) Looking at Option 2, determine the level of cupcake production per day at which Osama would maximise his profits.

    (b) What are the Marginal Cost per cupcake and Marginal Revenue per cupcake at the profit

maximising level of production? (Round figures to the nearest dollar).

2. Which option (option 1 or option 2) should Osama choose if he intends to maximise his earnings over the 10 week period? Would he be able to buy the new device using this option?

3. If Osama places a premium on the time he has available to spend with his friends, such that he estimates that he loses $350 for every hour that he spends away from his friends, which option (option 1 or option 2) would provide Osama with the maximum value for the time spent working?