A firm produces digital watches on a single production line serviced during one daily shift. The total output of watches depends directly on the number of labor-hours employed on the line. Maximum capacity of the line is 120,000 watches per month; this output requires 60,000 hours of labor per month. Total fixed costs come to $600,000 per month, the wage rate averages $8 per hour; and other variable cost (e.g., materials) average $6 per watch. The marketing department’s estimate of demand is P=28-Q / 20,000, where P denotes price in dollars and Q is monthly demand.
B. The firm can increase capacity up to 100 percent by scheduling a night shift. The wage rate at night averages $12 per hour. Answer the questions in part (A) in light of this additional option.