the largo publishing house use 400 printers and 200 printers presses to produce book. a printers wage rate is 20 and the price of a printing press is 5000. the last printer added 20 books to total output. is the publishing house making the optimal in put choice? why or why not? if not how should the manager of largo publishing house adjust input usage?
The last printer adds 20 books to the total output. So, the marginal productivity of the last printer is 20 books. The marginal productivity of the last printing press is 1000 books. The optimal choice of input is determined by the condition,
Marginal productivity of printer Marginal productivity of printing press Wage rate of the printer Price of the printing press 20 /20 �‚ 1000 / 5000 1 �‚ 0.2
To determine whether the publishing house is making the optimal input choice, we need to compare the additional cost of adding a printer to the additional revenue generated from the additional book output.
Let's calculate the cost of adding a printer:
Total cost = (Number of printers) x (Printer wage rate)
The cost of adding one printer = 20 (wage rate of a printer)
Now let's calculate the additional revenue generated from the additional book output:
Assuming that the additional 20 books produced are sold at a constant price, the additional revenue generated would be 20 (books) x (selling price per book).
If the additional revenue is greater than the additional cost, it means the publishing house is making a profit by adding a printer, and it indicates that they are at an optimal input choice.
However, without the information about the selling price per book, we cannot perform an accurate calculation to determine if the publishing house is making the optimal input choice. You would need to provide the selling price per book to evaluate it fully.
If the publishing house is not making the optimal input choice, the manager of the Largo Publishing House should adjust input usage. They can consider the following options:
1. Cost-benefit analysis: Assess the cost and revenue of adding more printers or printing presses to determine the optimal number needed for maximum productivity.
2. Technological upgrades: Evaluate if newer printing technologies or equipment could increase efficiency and reduce costs.
3. Workforce optimization: Analyze the productivity and efficiency of current employees and determine if adjustments can be made to improve output without increasing input.
By carefully evaluating cost, revenue, and productivity factors, the manager can make informed decisions regarding input adjustments to maximize profitability and efficiency at the Largo Publishing House.