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calculating margin and output of a tricycle factory

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Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled forms. Parents who assemble their own tricycles benefit from the lower price of $40 per tricycle. "Full-service" customers enjoy the luxury of an assembled tricycle, but pay a higher price of $60 per tricycle. Both partially and fully assembled tricycle prices are stable. The company has observed the following relation between the number of assembly workers employed per day and assembled tricycle output:

Number of Workers per day Finished Tricycles
0 0
1 8
2 14
3 18
4 21
5 23

A. Construct a table showing the net marginal revenue product derived from assembly worker employment.

B. How many assemblers would Just Bikes employ at a daily wage rate of $100?

C. What is the highest daily wage rate Just Bikes would pay to hire three assemblers per day?

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Solution Preview

A) Each worker who assembles a tricycle generates $20 in gross marginal revenue per tricycle.

Number of Workers Number of Assembled Tricycles Gross Margin per Tricycle
0 0 0
1 8 $160
2 14 $280
3 18 ...

Solution Summary

calculating margin and output of a tricycle factory