2. Smokey's Garage, Inc., provides routine auto diagnostics for customers in the Atlanta, Georgia, metropolitan area. Tests are supervised by skilled mechanics using equipment produced by two leading competitors in the auto test equipment industry. Records for the current year show an average of 4 tests per hour performed on the Sunny Tune System (STS), and 6 tests per hour on a new machine, the Car Care Tower (CCT). The STS is leased for $8,000 per month, and the CCT is leased at a rate of $12,000 per month (this implies that MFCSTS = $8,000 and MFCCCT = $12,000 per month). On average, each machine is operated 25 eight-hour days per month. Labor and all other costs are fixed.

a) What is the marginal revenue product (MRP) per month for each machine? (Note: Assume a price of $15, P = MR = $15).

b) At a price of $15 per test should the company lease more machines? If yes, which (or both) machine(s). NOTE: Evaluate this question on a monthly basis since you expressed the MRP for each machine in Part (a) in monthly terms.

Solution Preview

a) What is the marginal revenue product (MRP) per month for each machine? (Note: Assume a price of $15, P = MR = $15).

Each month, the machines will operate 8*25 = 200 hours.
Then the marginal product of STS is 4*200 = ...

... Because opportunity costs decrease profits, economic profits are generally less than accounting profits. ... What must his marginal cost be? B) 28. ...

Economics problems. ... c. If PL=$4.5 (wage per hour), what is the marginal cost (MC) of this wash ... and wages are $5 per hour, show that short-run total costs are STC ...

... b. What is the total variable cost function? ... Company XYZ would like to minimize average total cost. ... calculate whether the firm has economic profits, economic...

... In economic analysis, any amount of profit earned above zero is considered "above normal" because. ...Marginal cost is independent of fixed costs so it should ...

... 10-29 Simple ROI and Economic Profit Calculations- See ...problems relating to fixed and variable costs, by-products costing, analysis of job-cost data. ...

... Average variable costs are constant at $4,000 per unit ... revenue (MR) MR=5000-0.10* Q MC=Variable cost in this ... Q=10000 P=5000-0.05*10000=4500 Economic Profits = TR ...

... b. raised any revenue at all. c. did raise costs. ... d. earn zero economic profits in both the short-run and the long-run. ... (The marginal cost of labour went up) c ...

... and a 30 percent probability of an economic downturn. ... row for the fixed costs and the variable costs - Row 13 ... I put the formula for calculating the total cost. ...

Basic economic concepts. ... $9000 to the total Revenue which is lower than marginal cost of labor ie ... Solution to first problem explains the effect of rise in income ...