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

Government increases the taxes on car ownership, Government increases the t...

Government increases the taxes on car ownership. Explain the possible market outcomes of such a decision.  As this is a tax paid by owners, and therefore not levied indirectly

Production, who is a rational producer?

who is a rational producer?

Williamson’s Model of Managerial Discretion , equilibrium output and prince...

equilibrium output and prince is determined in williamson model of managerial discretion ?

Explicit cost, Explicit cost: Explicit costs are payments made by the ...

Explicit cost: Explicit costs are payments made by the firm when it purchases or hires factors of production for the production of goods and services. They are also referred t

What is opportunity cost, What is opportunity cost?  Answer:   Opportun...

What is opportunity cost?  Answer:   Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity foregone (and the advantages that co

Macro , Suppose that nominal interest income is taxed at a rate of 30%. Cal...

Suppose that nominal interest income is taxed at a rate of 30%. Calculate the before-tax real interest rate and the after-tax real interest rate if the nominal interest rate is 6%

Marketing economies, Marketing Economies: These are derived from the ...

Marketing Economies: These are derived from the bulk purchasing of inputs and bulk distribution of outputs. A large firm is able to buy its raw materials in larger quantities

Theory of second best, What is the theory of Second Best? Prove the theore...

What is the theory of Second Best? Prove the theorem with the help of a diagram.

Simultaneous equation methods of forecasting, The economic model forecastin...

The economic model forecasting involves estimating several simultaneous equations which are generally behavioural equation mathematical identities and market clearing equations. T

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