Below is productivity data for firm Nearly Done Inc.which purchases resources in a perfectly competitive factor market.

-Refer to the above information to answer this question.At its optimal output,what is Nearly Done's total profit or loss if the market wage rate is $8,total fixed costs are $24 and labour costs are the only variable costs?
A)-$72.
B)-$8.
C)+$10.
D)+$12.
E)Cannot be determined.

Question

Below is productivity data for firm Nearly Done Inc.which purchases resources in a perfectly competitive factor market.
 
-Refer to the above information to answer this question.At its optimal output,what is Nearly Done's total profit or loss if the market wage rate is $8,total fixed costs are $24 and labour costs are the only variable costs?
A)-$72. 
B)-$8. 
C)+$10. 
D)+$12. 
E)Cannot be determined.

Quizplus · Accepted Answer

Nearly Done's total profit or loss is equal to its total revenue minus its total costs. At its optimal output, Nearly Done's total revenue is equal to the market price of its output multiplied by the quantity of output it produces. Its total costs are equal to its total fixed costs plus its total variable costs. Its total variable costs are equal to the market wage rate multiplied by the quantity of labour it employs. Therefore, Nearly Done's total profit or loss is equal to:Total revenue - Total costs= (Market price of output * Quantity of output) - (Total fixed costs + Total variable costs)= (Market price of output * Quantity of output) - (Total fixed costs + Market wage rate * Quantity of labour)= (Market price of output * Quantity of output) - (Total fixed costs + Market wage rate * (Quantity of output / Marginal product of labour))= (Market price of output * Quantity of output) - (Total fixed costs + Market wage rate * (Quantity of output / (Marginal product of labour / Average product of labour)))= (Market price of output * Quantity of output) - (Total fixed costs + Market wage rate * (Quantity of output / (Marginal revenue product of labour / Average revenue product of labour)))At its optimal output, Nearly Done's marginal revenue product of labour is equal to the market wage rate. Therefore, the denominator of the last term in the above equation is equal to 1. Therefore, Nearly Done's total profit or loss is equal to:Total revenue - Total costs= (Market price of output * Quantity of output) - (Total fixed costs + Market wage rate * Quantity of output)= (Market price of output - Market wage rate) * Quantity of output= ($10 - $8) * 10= $20Therefore, Nearly Done's total profit or loss is +$20.

Below Is Productivity Data for Firm Nearly Done Inc