PS6_Essay

PS6_Essay - ECON 1001 Essay Problem Set 6 Background info:...

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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:
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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?
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$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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PS6_Essay - ECON 1001 Essay Problem Set 6 Background info:...

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