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 $625, 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 its 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 $2,500 (= 4 × $625). Marginal benefit is also greater than marginal cost for the 2ⁿᵈ and 3ʳᵈ hours of work. For the 4ᵗʰ hour of work, however, marginal benefit is less than marginal cost. Thus, the firm should employ Pam for 3 hours a day.

A Firm Pays Pam $40 Per Hour to Assemble Personal