Question

More or fewer deliveries? Consider a delivery firm that delivers packages by bicycle, charging $11.00 per package and paying each of it's workers $10 per hour. One day, one of the workers was four hours late to work, and the number packages delivered that day decreased by three packages. a. The tardiness of the worker blank the firms profit. b. Based on the new information provided by the tardy worker, the firm should produce fewer deliveries by reducing it's workforce because the marginal cost is blank the price.

Answer 1

There is a firm that delivers packages by bicycle.The firm is charging $11.00 per package. The payment made to the workers is at the rate of $10 per hour.

One of the workers was four hours late to work,which resulted in the reduction of number packages delivered on the given day by three packages.

a. The tardiness of the worker increases the firms profit. This is because the worker was paid $40 less (as he did not work for 4 hours) but the lost revenue was 3*11 = $33. Hence cost saving was more than revenue loss so there was a profit of $7.

b. Based on the new information provided by the tardy worker, the firm should produce fewer deliveries by reducing it's workforce because the marginal cost is currently greater than the price.This is seen from the fact that when labor units were reduced by 4,revenue lost was equal to $33 while cost saved in the form of lower wage bill was $40.