Problem Set #6

# Problem Set #6 - ECON 1001 Essay Problem Set 6 Background...

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ECON 1001 Essay Problem Set 6

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Background info: Ann is a freelance writer. She has invested \$500 in a typewriter She earns \$1500/hour if she does tutoring. She writes at a constant rate within a hour, and her productivity in writing is as follows:
Hours Total number of words 1 100 2 300 3 600 4 900 5 1125 6 1325 7 1475 8 1575

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Question 1: - If the market rate for writers is \$8 per word, how many hours should Ann spend on writing? - How many words would Ann write?
\$8 per word is the Marginal Revenue Ann earns for each word she sells. To determine the optimal amount of words to write, Ann needs to find where MR = MC – this is the profit-maximising rule. So we need to find at which hour will Ann’s MR = MC. But first of all, how do we calculate MC?

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Let us first calculate Marginal Productivity of each hour. This is the amount of words written in the last hour. For example, the MP of 1st hour is 100 - 0 =100. MP of 2nd hour is 300 – 100 = 200. MP of 3rd hour is 600 – 300 = 300. So on and so forth.
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## This note was uploaded on 04/18/2011 for the course ECON 1001 taught by Professor S.c during the Spring '10 term at HKU.

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Problem Set #6 - ECON 1001 Essay Problem Set 6 Background...

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