Marge Costa produces plastic dog dishes using a process that requires only labor
ID: 1112890 • Letter: M
Question
Marge Costa produces plastic dog dishes using a process that requires only labor and plastic as inputs and has constant returns to scale. With the process she is currently using, a laborer can turn out 30 dog dishes an hour. The wage rate is $9 per hour. The plastic in a dog dish costs Marge $.10. She has no other costs besides labor and plastic. Marge faces a perfectly competitive market for plastic dog dishes, and she decides that she is maximizing profits when she makes 300 dog dishes an hour. What is the market price of dog dishes?
answer: 0.4
HOW TO SOLVE?
Explanation / Answer
Answer: 0.4
Working:
We are given that in an hour a laborer produces 30 dishes, thus 1 worker = 30 dishes
Wage per hour = $9
Cost of making a dish = $9/30 = $0.3
The equation of the total cost = 0.3y + 0.1y
Equation of marginal cost (after differentiation of the total cost function) will equal 0.4 (=0.3 + 0.1)
Because price (P) = Marginal Cost (MC) thus the market price of one dish will equal 0.4