Explanation for marginal production-decision making

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Reference no: EM1316533

1. The largo Publishing House uses 400 printers and 200 printing presses to produce books. A printer's wage is $20 and the price of a printing press is $5000.00. The last printer added 20 books to total output, while the last press added 1000 books to total output. Is the publishing house making the optimal input choice? Why or why not? If not, how should the manager of Largo Publishing house adjust input usage?

2. The MorTex Company assembles garments entirely by hand even though a textile machine exists that can assemble garments faster than a human can. Workers cost $50 per day and each additional labourer can produce 200 more units per day (that is, marginal product is constant and equal to 200). Installation of the first textile machine on the assembly line will increase output by 1800 units daily. Currently the firm assembles 5400 units per day.

a. The financial analysis department at Mortex estimates that the price of a textile machine is $600 per day. Can management reduce the cost of assembling 5400 units per day by purchasing a textile machine and using less labour? Why or why not?

b. The textile worker of America is planning to strike for higher wages. Management predicts that if the strike is successful, the cost of labour will increase to $100 per day. If the strike is successful, how would this affect the decision in part a to purchase the textile machine. Explain the answer.

Reference no: EM1316533

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