posted by jean on .
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 product is constant and equal to 200). Installation of the first textile machine on the assembly line will increase output by 1,800 units daily. Currently the firm assembles 5,400 units per day.
a. The financial analysis department at MorTex estimates that he 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.
Take a shot. What do you think.
a)additional worker costs (50/200 = 1/4) dollar per unit
additional machine costs (600/1800 = 1/3) dollar per unit
So it would not pay to buy the machine
b) If the hourly wage doubles, the labor would cost (1/2) dollar per unit, which is now greater than the (1/3) dollar per unit for the machine. Now the union caused layoffs :(
By the way, I can sometimes help with math based questions. However I am a physicist and do not know management speak.