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 laborer can produce 200 more units per day (i.e., marginal product is constant and equal to 200). Installation of the first textile machine on the assembly line will increase output by 1,800 units daily. Currently the firm assembles 5,400 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 5,400 units per day by purchasing a textile machine and using less labor? Why or why not?
b. The Textile Workers of America is planning to strike for higher wages. Management predicts that if the strike is successful, the cost of labor will increase to $100 per day. If the strike is successful, how would this affect the decision in part a to purchase a textile machine? Explain.
This question was asked on May 18, 2010.
Recently Asked Questions
- The earth receives more heat per unit surface area near the equator than at the poles. So, why doesn’t the tropical region get continuously hotter and the
- Top executive officers of Baird Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current
- You are a marketing intern in a hospitality or tourism organization of your choice in Toronto. The GM (General Manager), Mrs. Robinson, asks you to identify 2