Question

Siri has decided to earn some money to pay for her tuition by painting houses for Amherst residents. She determines that cost of painting is roughly $80 per house. One neighbor is willing to pay her $115 to pain. A second neighbor is willing to pay $105. A third neighbor is willing to pay $101, while a fourth neighbor is willing to pay $70. What’s the marginal cost of painting? How many houses should she paint? How much much will she earn?

Answer 1

Ans:

Marginal cost is the additional cost of producing one additional unit or serving one more customer.In this case marginal cost of painting is $80 per house.

1) marginal cost of painting = $80 per house.

2) Houses painted = 3

The profit maximizing level of output is where marginal revenue is above or equal to marginal cost.The marginal revenue of painting third house is $101, which is above marginal cost of $80. Hence three houses should be painted.

3) Profit = Revenue - Cost

= ($115 + $105 + $101) - ($80+$80+$80)

= $81

She will earn $81.