Managerial Economics

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The Largo Publishing House uses 400 printers (workers) and 200 printing presses to produce books. A printer's wage rate is $20 per hour and the price per hour of a printing press is $5,000. The last printer hired added 20 books (per hour) to total output, while the last printing press added 1000 books (per hour) to total output. Is the publishing house making the optimal input choice? If not, how should the manager of Largo Publishing House adjust input usage?
Answer

A. No, the publisher is not making the optimal input choice. The publisher should use less of both inputs because the MP of each one is declining.

B. No, the publisher is not making the optimal input choice. The publisher should use more of both inputs in order to benefit from economies of scale.

C. No, the publisher is not making the optimal input choice. The publisher should use more printing press hours and fewer printer hours to produce at the same rate of output.

D. Yes, the publisher is making the optimal input choice.

E. No, the publisher is not making the optimal input choice. The publisher should use more labor hours and fewer printing press hours to produce at the same rate of output.

  • Managerial Economics -

    examine the benefits/cost ratio.

    the last printer added: 20books/$20=1book/dollar

    last press added: 1000books/$5000=0.20 books/dollar

    Looks like the printer gets the most books per dollar invested.

    check those figures.

  • Managerial Economics -

    Okay, but which one do you think would be the answer between the multiple choices given.

  • Managerial Economics -

    Ok, given the above, do this thinking exercise. If the publishing house had 5000 dollars, which would be the best expenditure: one Press, or 250 printer hours? Which makes the more books?

  • Managerial Economics -

    D. Yes, the publisher is making the optimal input choice.

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