Short-run economic decisions, Microeconomics

Assignment Help:

Weston Industrial Manufacturing Products ("WIMP") has the capability to produce a variety of industrial products, including a number of types of widgets. In the past, WIMP has manufactured 2 different types of widget (Type A and Type B). Each of these is sold in a market that approximates a perfectly competitive market. Production is limited to standard shifts operating Monday through Friday due to a contract with the relevant labor union.

The average labor rate is $10 per hour and the company currently employs 10 laborers who work a single 8-hour shift each day. The company employs several salaried marketing and administrative employees. The following table provides price and cost data collected from the accounting department:

WIMP: Per-Unit Price and Cost Data by Widget Type

 

Type A

Type B

Gizmo Widget

Price

100

90

See marketing estimates

 

 

 

 

Labor

40

20

20

Materials

20

40

50

SGA

8

4

4

Depreciation

20

18

40

 

 

 

 

WIMP has recently developed a new widget, the "Gizmo Widget." The Gizmo Widget is designed to serve a niche demand segment in the manufacturing industry. Labor costs are relatively low but this is partially offset by higher materials costs.

The company recently upgraded machinery to enable the Gizmo Widget to be produced and this is reflected in higher depreciation charges. WIMP's marketing staff produced the following sales projections regarding the Gizmo Widget:

Price

Projected Weekly Sales (# units)

180

50

160

90

140

120

120

140

100

160

80

170

In the short run, WIMP cannot add to its labor force of ten employees and consequently there are only 80 labor hours available per day to allocate toward widgets.

1.      Which costs in the table of accounting information are relevant for making short-run economic decisions regarding the production mix of widgets? Explain and show.

2.      Ignore the Gizmo Widget for the moment. How should WIMP be allocating production between the Type A and Type B widgets?
Be sure to briefly explain your approach/reasoning.

3.      What is the profit maximizing number of Gizmo Widgets that should be introduced? Be sure to account for the fact that Gizmo Widgets displace other types of widgets. Again, be sure you provide a brief explanation of your approach/reasoning.


Related Discussions:- Short-run economic decisions

2 econ problems, I have the answers to these two questions, but I need to k...

I have the answers to these two questions, but I need to know HOW to get these answers. Thanks. Question 1 Suppose there are two goods beverage and pizza and two inputs land, T

Point elasticity, Point elasticity: It refers to measurement of elasticity ...

Point elasticity: It refers to measurement of elasticity on a point On a demand curve. Point elasticity helps in measuring elasticity where change in price and quantity is infinite

Calculate currency exchange rate, Question-1 : This question is designed ...

Question-1 : This question is designed to show your understanding of stock market terminology and also the impact of currency exchange rate. You are a Swiss Franc (CHF) based inv

Keynes theory and expectations, Expectations played a major role in Keynes'...

Expectations played a major role in Keynes' theory of the determination of aggregat output and employment in market economies in the short run. Expectations about future yields on

Assignment, what is the theory of second best ? prove the theorem with the ...

what is the theory of second best ? prove the theorem with the help of a diagram .

Features of bureaucracy, Features of bureaucracy: Impersonal Order: ...

Features of bureaucracy: Impersonal Order: The authority is inherent in the post and not the individual who performs the official role. An official is supposed to have a det

Price of lending money, Interest: A lender charges interest as the price of...

Interest: A lender charges interest as the price of lending money (or some other asset) to a borrower. Interest is mainly charged as a specified percentage of the loan's value, per

Second Best, What is the theory of second best

What is the theory of second best

Market equilibrium, Market equilibrium happens where supply equals demand (...

Market equilibrium happens where supply equals demand (supply curve intersects demand curve).   An equilibrium implies that there is no force that will cause further changes in pri

Mangerial Economics, A portion of the demand schedule for wax candles (per ...

A portion of the demand schedule for wax candles (per case) is shown below. Px $50 $30 $10 Qx 500 600 700 What is the demand curve (straight line) that corresponds to the schedu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd