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Night Racers Production

The company called “Night Racers” is a small company that develops and sells a wide

range of high-quality racing scooters. The company produces highly competitive product with

attractive design and perfect technical characteristics. Our company sells products nationwide.

At this moment, there are 14 employees in the company. We produce 224 racing

scooters per month. Our products cost $180.

The production function is:

= 30 ∙ − ,

Where is the quantity produced, is the labor used.

Marginal cost of labor is $360: = 360.

We used this function to find the optimal level of production to maximize our profit and

make our work more effective. By using the production function, we will find the marginal

product of labor and use it to maximize our profit:

= = 30 − 2 ∙ .

The output price is $180, i.e. = 180. The marginal revenue product of labor is:

= ∙ = 180 ∙ (30 − 2 ∙ ) = 5400 − 360 ∙ .

The profit maximization rule:

= ,

360 = 5400 − 360 ∙ ,

360 ∙ = 5040,

= 14.
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At the optimal level of production, we will produce 224 racing scooter per month:

= 30 ∙ 14 − 14 = 224 (units).

We are able to see graphs of the production function below:

Production Function and Profit Maximization

Quantity MPL APL MCL MRPL
800

700

600

500
Quantity

400

300

200

100

0
0 5 10 15 20 25
-100
Labor

The revenue will be:

= 224 ∙ 180 = $40,320.

According to our estimation, the fixed cost equal $9,800 per month, and the variable

cost is $65 per scooter. Total Cost equal:

= $9,800,

= 65 ∙ ,

= 9800 + 65 ∙ .

The marginal cost will be equal to the variable cost: = $65. Average fixed cost,

average variable cost and average total cost are shown in the table and graphs below.
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Total Cost, Fixed Cost, and Variable Cost

TC TVC TFC
$30,000

$25,000

$20,000
Cost

$15,000

$10,000

$5,000

$0
0 50 100 150 200 250
Quantity (Q)

Average Cost (ATC, AFC, AVC) and Marginal Cost (MC)

MC ATC AFC AVC

$450

$400

$350

$300

$250
Cost

$200

$150

$100

$50

$0
0 50 100 150 200 250
Quantity (Q)

As we are able to see from the table below, total profit is $15,960 per month. In our

case, accounting and economic profit are the same as we do not have any opportunity (implicit)

costs. For the long-run case, we will have the same result. Thus, we have constant returns to

scale.
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Labor Q MPL APL MRPL MCL TR MR TFC TVC TC MC ATC AFC AVC Profit
1 29 28 29 $5,040 $360 $5,220 $9,800 $1,885 $11,685 $402.93 $337.93 $65 -$6,465.00
2 56 26 28 $4,680 $360 $10,080 $180 $9,800 $3,640 $13,440 $65 $240.00 $175.00 $65 -$3,360.00
3 81 24 27 $4,320 $360 $14,580 $180 $9,800 $5,265 $15,065 $65 $185.99 $120.99 $65 -$485.00
4 104 22 26 $3,960 $360 $18,720 $180 $9,800 $6,760 $16,560 $65 $159.23 $94.23 $65 $2,160.00
5 125 20 25 $3,600 $360 $22,500 $180 $9,800 $8,125 $17,925 $65 $143.40 $78.40 $65 $4,575.00
6 144 18 24 $3,240 $360 $25,920 $180 $9,800 $9,360 $19,160 $65 $133.06 $68.06 $65 $6,760.00
7 161 16 23 $2,880 $360 $28,980 $180 $9,800 $10,465 $20,265 $65 $125.87 $60.87 $65 $8,715.00
8 176 14 22 $2,520 $360 $31,680 $180 $9,800 $11,440 $21,240 $65 $120.68 $55.68 $65 $10,440.00
9 189 12 21 $2,160 $360 $34,020 $180 $9,800 $12,285 $22,085 $65 $116.85 $51.85 $65 $11,935.00
10 200 10 20 $1,800 $360 $36,000 $180 $9,800 $13,000 $22,800 $65 $114.00 $49.00 $65 $13,200.00
11 209 8 19 $1,440 $360 $37,620 $180 $9,800 $13,585 $23,385 $65 $111.89 $46.89 $65 $14,235.00
12 216 6 18 $1,080 $360 $38,880 $180 $9,800 $14,040 $23,840 $65 $110.37 $45.37 $65 $15,040.00
13 221 4 17 $720 $360 $39,780 $180 $9,800 $14,365 $24,165 $65 $109.34 $44.34 $65 $15,615.00
14 224 2 16 $360 $360 $40,320 $180 $9,800 $14,560 $24,360 $65 $108.75 $43.75 $65 $15,960.00
15 225 0 15 $0 $360 $40,500 $180 $9,800 $14,625 $24,425 $65 $108.56 $43.56 $65 $16,075.00
16 224 -2 14 -$360 $360 $40,320 $180 $9,800 $14,560 $24,360 $65 $108.75 $43.75 $65 $15,960.00
17 221 -4 13 -$720 $360 $39,780 $180 $9,800 $14,365 $24,165 $65 $109.34 $44.34 $65 $15,615.00
18 216 -6 12 -$1,080 $360 $38,880 $180 $9,800 $14,040 $23,840 $65 $110.37 $45.37 $65 $15,040.00
19 209 -8 11 -$1,440 $360 $37,620 $180 $9,800 $13,585 $23,385 $65 $111.89 $46.89 $65 $14,235.00
20 200 -10 10 -$1,800 $360 $36,000 $180 $9,800 $13,000 $22,800 $65 $114.00 $49.00 $65 $13,200.00