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# Law of Demand

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* During the month of July, McElroy Company's direct labor cost totaled \$36,000, and direct labor cost was 60% of prime cost. If total manufacturing costs during July were \$85,000, the manufacturing overhead was:

a. \$60,000
b. \$25,000
c. \$30,000
d. \$51,000

* Suppose that the price of Product A falls from \$20 to \$15. In
response, the quantity demanded of A increases from 100 to 120 units.
The quantity demanded for Product B increases from 200 to 300. Calculate
the arc cross elasticity between Product B and Product A. Is B a
substitute or complement for A? Explain. Does Product A follow the "law
of demand?" Explain

* Suppose that the marginal product of labor is: MP = 100 - L, where L
is the number of workers hired. You can sell the product in the
marketplace for \$50 per unit and the wage rate for labor is \$100. How
many workers should you hire?

#### Solution Preview

1.

Prime Cost = 36,000/60% = 60,000

Therfore overhead = 85,000 - 60,000 = 25,000

2.

change in price of A = -25%

Increase in demand of A = +20%

Increase in demand ...

#### Solution Summary

The Law of Demand is investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.

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