A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $650, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment?

Question

Quizplus · Accepted Answer

The marginal benefit of the first hour of work is greater than the marginal cost. That is, the marginal cost of the first hour is $2,440 (= $2,400 for parts + $40 for labor), and the marginal benefit is $2,600 (= 4 × $650). Marginal benefit is also greater than or equal to marginal cost for the 2ⁿᵈ, 3ʳᵈ and 4ᵗʰ hours of work. Thus, the firm should employ Pam for 4 hours.

A Firm Pays Pam $40 Per Hour to Assemble Personal