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					Production cost in the short run

Problem 1

At a management luncheon, two managers were overheard arguing about the following statement: “A
manager should never hire another worker if the new person causes diminishing returns.” Is this
statement correct? If so, why? If not, explain why not.



Production cost in the long Run

Problem 2

The largo Publishing House uses 400 printers and 200 printing presses to produce books. A printer’s
wage rate is $ 20, and the price of a printing press is $ 5,000. The last printer added 20 books to total
output, while the last press added 1,000 books to total output. Is the publishing house making the
optimal input choice? Why or Why not? If not, how should the manager of largo Publishing House adjust
input usage?



Problem 3

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 assembly line will increase output by 1,800
units daily. Currently the firm assembles 5,400 unites 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

				
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posted:5/23/2012
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