Mark works for Maple Feel Inc., which exports maple syrup to Hungary. Currently,

Question

Mark works for Maple Feel Inc., which exports maple syrup to Hungary. Currently, he generates $45,000 a year of net revenues for the firm and his salary is $45,000 per year. Mark is planning to hire a private teacher to learn some Hungarian. His only cost would be the teacher’s fee of $60 per hour. Mark knows that if he devotes H hours to the study of the Hungarian language, his ability to generate revenues from sales in Hungary will increase to $45,000 + $1,200H^(1/2) per year. Mark will retire after one more year of working. a) Suppose there are many similar companies trying to export goods to Hungary and in each of them Mark’s knowledge of the Hungarian language would be equally useful as in Maple Feel. How many hours will he devote to learning Hungarian? B)Now suppose that Maple Feel is the only company in which Mark’s knowledge of Hungarian could be useful and that Mark’s bargaining power is such that he could negotiate a wage increase equal to 25% of the gains from his increased productivity. How many hours will Mark devote to learning Hungarian if he bears the full cost of his study? C) Suppose the company agrees to subsidize Mark’s learning. How much of the $60 hourly fee will be paid by the company if they want Mark to study the efficient number of hours?

Explanation / Answer

Current Revenue          45,000 Salary          45,000 Cost of learning                  60 per hour =45000+1200*H^(1/2) No of Hrs Total revenue Rate per Hr. Cost of Learning Net Increase Net Gain               10          48,795                  60             600            3,195          2,595               20          50,367                  60         1,200            4,167          2,967               30          51,573                  60         1,800            4,773          2,973               40          52,589                  60         2,400            5,189          2,789               50          53,485                  60         3,000            5,485          2,485               60          54,295                  60         3,600            5,695          2,095               70          55,040                  60         4,200            5,840          1,640               80          55,733                  60         4,800            5,933          1,133               90          56,384                  60         5,400            5,984             584            100          57,000                  60         6,000            6,000                 -              110          57,586                  61         6,710            5,876           (834) He can devote maximum 100 hrs in learning the Hungarian b No of Hrs Total revenue Rate per Hr. Cost of Learning Net Increase 25% of the increase               10          48,795                  60             600            3,195             799               11          48,980                  61             671            3,309             827               12          49,157                  62             744            3,413             853               13          49,327                  63             819            3,508             877               14          49,490                  64             896            3,594             898               15          49,648                  65             975            3,673             918               16          49,800                  66         1,056            3,744             936               17          49,948                  67         1,139            3,809             952               18          50,091                  68         1,224            3,867             967               19          50,231                  69         1,311            3,920             980               20          50,367                  70         1,400            3,967             992 If marks bear all his cost of learning than maximum he can spent 14 hrs for learning C No of Hrs Total revenue Rate per Hr. Cost of Learning Net Increase Net Gain               10          48,795                  60             600            3,195          2,595               20          50,367                  60         1,200            4,167          2,967               30          51,573                  60         1,800            4,773          2,973               40          52,589                  60         2,400            5,189          2,789               50          53,485                  60         3,000            5,485          2,485               60          54,295                  60         3,600            5,695          2,095               70          55,040                  60         4,200            5,840          1,640               80          55,733                  60         4,800            5,933          1,133               90          56,384                  60         5,400            5,984             584            100          57,000                  60         6,000            6,000                 -   If company want to susidise then $1800 should for 30 hours should be subsidised

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