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 (ie. marginal product is constant and equal to 200).
Installation of the first textile machine on the assembly line will increase output by 1800 units daily. Currently the firm assembles 5400 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 5400 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"
a) If the MorTex Company assembles Garments entirely by hand, the total cost can be calculated as follows:
Workers cost $50 per day and Marginal productivity of labor MPL = 200.
The firm assembles 5400 units per day.
Thus in order to produce 5400 units, 5400/200 = 27 labors is required.
Therefore the total cost of assembling 5400 units per day entirely by ...
The solution discusses a financial analysis problem.