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

Natural resource economics, Normal 0 false false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Consumer behaviour, do you think that dimnishing returns to a factor are co...

do you think that dimnishing returns to a factor are consistent with increasing returns to scale? explain with suitable diagram and reasoning.

Economic value, The monetary calculate of the welfare associated with the c...

The monetary calculate of the welfare associated with the change in the provision of some good. It is not to be confused with monetary value, unless the latter is explicitly desig

Suggestions - rationale in era of globalisation, Suggestions For the l...

Suggestions For the last 60 years the Bretton Woods institutions have played an essential role in ensuring global financial stability and fostering economic growth and develop

Banking, what is fractional reserve and how does it affect money supply?

what is fractional reserve and how does it affect money supply?

Demand, factors influencing the conditions of demand for a given product

factors influencing the conditions of demand for a given product

Short run equilibrium - perfect competition, Short run equilibrium - Perfec...

Short run equilibrium - Perfect competition: In the short-run, the perfectly competitive firm maximizes its profit by producing output where MC=MR=P. This is shown in the diag

When is tax to society cause a deadweight loss, When is tax to society caus...

When is tax to society cause a deadweight loss? Applying Consumer and Producer Surplus: The Efficiency Costs of a Tax A tax causes a deadweight loss to society, since les

Cholesterol within acceptable limits, The recent flooding in the upper Midw...

The recent flooding in the upper Midwest destroyed a important proportion of the corn crop.  Though, it has been discovered that corn oil is far better in keeping cholesterol withi

Student, How to calculate: fixed cost is $1,000,000 tvc $4,400,000, avc is ...

How to calculate: fixed cost is $1,000,000 tvc $4,400,000, avc is $22, atc $27, worker productivity is 4. How do I calculate the profit or loss?

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