Question

Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.

Answer 1

Profit; $ 170

Explanation:

Given,

Number of units produced = 100,

Cost of each unit = $ 5,

So, total revenue = units produced × cost of each unit

= 100 × 5

= $ 500,

Now, the total employee-hours = 13,

Also, the hourly wages = $ 10,

So, the total wages paid = 13 × 10 = $ 130,

Again, rent = $ 200,

Thus, total spending = $ 130 + $ 200 = $ 330

∵ Revenue > Spending

i.e. firm earned profit,

Profit = revenue - spending = $ 500 - $ 330 = $ 170

Hence, each day the firm earns a profit of $ 170.