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Satsume Satsume
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7 years ago
Trisha's Fashion Boutique is considering a profit sharing arrangement with her employees.  Currently, the employees receive an annual bonus.  In a "Boom" market, Trisha can sell all the output she produces for $225 per unit.  In a "Bust" market, Trisha can sell all the output she produces for $125 per unit.  The probability of a "Boom" market is 75% and the probability of a bust market is 25%.  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 expected profits for herself?  Suppose the employees will only approve a profit sharing plan if they are guaranteed their portion of profits will be at least $400.  Will the employees approve of the profit sharing program?
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Microeconomics

Microeconomics


Edition: 8th
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Bart_argBart_arg
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