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Unformatted text preview: ECON 311 PROFESSOR EDUARDO ZAMBRANO 'ORFALEA COLLEGE or BUSINESS Stephanie Strider COST, BENEFITS, DECISIONS Kaiser Aluminum is a profit—maximizing aluminum producer along the northwest's Columbia River. Early in year 2000 they contracted the work services of L900 workersat $300.0 per worker per month (plus benefits of 34.6%; per worker per month) for the first seven- months of 2001. Each worker works about 8 hours“ a day for about 20 days each month. To remain lawful Kaiser must meet these obligations at this point regardless of how much aluminum they make. They also bought contracts that would guarantee to anyone holding those contracts the delivery of a total of 2.5 million of kilowatt hours of electricity at $22 per KWH for the first seven months of 2001. It turns out that at the moment the electricity was actually needed to produce the aluminum the price of the electricity was about $405 per KWH! Kaiser was lucky to lock in the price of the electricity; it needed before the electricity market in the west completely melted due to the California? electricity crisis. Assume that all other fixed costs of Kaiser sum up to $130 million for that period. Given the technology installed in the plant, the prdduction of fi/xebuudred pounds of aluminum: requires 2.5 KWH and one hour of labor. These proportions are valid regardless of how much «aluminum iS produced. ' iAluminum sells for 75 cents a pound and it is a pretty homogeneous product, which means that: z. purchasers do not see any particular advantage at any moment in time to purchase aluminum from gone supplier over another. nlf Kaiser is a profit maximizing company as stated above how much aluminum will Kaiser: produce in this seven month period? 406mm) Wax/D Vida/bf t , ,. 5 jl 1140mm} Mud Worker/E $<5§.°°“;°W Sbld tutww) 12w filth; new you £11391 cl (,0le @00le Tutti: 2,5Ilwlrkev Zovllas lKWH 5])0? {( Z //\> 2 do,“ ; ifl’lg [266} I? ( é qZZr- 341)“? DO)6WDU3K )0 Z Z ,1 ”250% MW l\ Q :m’hzml—11’50 ; ,V 5 b r h L alVWBhUm l L; I y f ...
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