Answer to Question #223028 in Microeconomics for Raksha

Question

Anne would produce 10 robots a week working for an employer that recently offered her a position. Each robot requires $50 in material inputs and sells for $100. For Anne, this would mean no longer day trading, from which she makes $450 per week. Which of the following wage rates might Anne and the robot factory agree to?


$400/week
$460/week
$510/week
$550/day
None of the above

Answer 1

Input cost, in the study of economics, refers to the costs that are required for producing a good or service in the economy. Examples of input costs include material cost, labor cost, factory overhead cost, etc. 

Profit refers to the monetary cost along with opportunity costs that are paid by a company and the revenue that it gets back. The difference between total revenue and the total cost is termed as profit.

Input costs can be calculated by taking the product of price per unit of the commodity and the amount of the commodity produced. Additionally, marginal input cost is generally the excess cost that is incurred in the production of an extra unit of output.

In this case, the material input cost can be calculated by taking the product of the price of the robot ($10) and the quantity of robot produced in the week (10). 

Total Input Cost=Price Per Unit×Quantity Produced Per Week

$=\$10×10\\ =100$

The total sales per week are now calculated by taking the product of the quantity of robot produced in the week (10) and the selling price of the robot ($100).

Total Sales=

Selling Price×Quantity Produced Per Week

$=\$100×10\\= 1,000$

Now, profit can be calculated by taking the difference between total revenue or total sales per week and the total input cost incurred for the production.

Profit=Total Sales−Total Input Cost

$=\$1000−(\$500+\$450)\\= \$50$

The best wage for Person A for her to agree with the employer must be an amount that can get back the highest returns to the factory along with making sure that there is optimum utilization of labor. 

Therefore, person A will agree on a wage that will be the sum of the amount she makes now ($450) and the profit ($50). That is $500.  

Therefore, none of the options are correct.