Top Posters
Since Sunday
18
14
7
r
6
6
u
5
V
4
b
4
r
4
o
4
d
4
n
4
Home Q & A Board Other Fields Homework Help Business Economics
New Topic  
Satsume Satsume
wrote...
Go to Answer
Posts: 761
Rep: 0 0
5 years ago
Trisha's Fashion Boutique is considering a profit sharing arrangement with her employees.  Currently, the employees receive an annual bonus.  Trisha can sell all the output she produces for $150 per unit.  Trisha's total cost function (including bonus payments to employees) is: TC(Q) = 75Q + 2.5Q2.   The marginal cost function is: MC(Q) = 75 + 5Q.  The profit sharing plan would pay employees 30% of profits.  However, due to greater cost saving initiatives from employees, Trisha's total cost function becomes: TC(Q) = 50Q + 2Q2.  The relevant marginal cost function becomes: MC(Q) = 50 + 4Q.  Which plan offers Trisha the greatest profits for herself?
Textbook 
Microeconomics

Microeconomics


Edition: 8th
Author:
Read 63 times
2 Replies
Replies
Answer verified by a subject expert
Bart_argBart_arg
wrote...
#1
Top Poster
Posts: 568
Rep: 14 0
5 years ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
With the bonus plan, Trisha's profit maximizing output corresponds to: MC(Q) = P  75 + 5Q = 150  Q = 15.  Trisha's profits are $562.50 at this output level with the employee bonus.  With the profit sharing plan, Trisha's profit maximizing output corresponds to: MC(Q) = P  50 + 4Q = 150  Q = 25.  Trisha's portion of the profits is 0.7($1,250) = $875.  Trisha earns a larger profit for herself if she institutes the profit sharing plan.
1

Related Topics

wrote...
#2
2 years ago
thank you
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  226 People Browsing
 240 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Related Images
  
 8671
  
 247
  
 3
Your Opinion
Previous poll results: Who's your favorite biologist?