1.) The XYZ firms production manager reports that the short run production relat

Question

1.) The XYZ firms production manager reports that the short run production relationship between the number of labor units that may be used in production, and the total product that may be produced per period of time is as follows:

Labor units (L) Total Output (Q)

0 . . . . . . . . . . . . . .0

1 . . . . . . . . . . . . . .1

2 . . . . . . . . . . . . . 4

3 . . . . . . . . . . . . . 10

4 . . . . . . . . . . . . . 15

5 . . . . . . . . . . . . . 19

6 . . . . . . . . . . . . . 22

7 . . . . . . . . . . . . . 24

8 . . . . . . . . . . . . . 25

The wage rate per unit of labor is $10.00, and the unit cost of raw materials is $1.00, the total fixed cost is $5.00, and the firm needs one unit of raw material for each unit of output.

The product is sold in a competitive market which is composed of 1,000 firms which are identical to the one given in the problem. the market demand for the product is : (please show work)

2.) The Ketchum Every Time Company maufactures two kinds of baseball gloves. The profit from the high quality glove is $4, and the profit from the low quality glove is $2. Machine A is the only machine on which these gloves can be made. It takes 30 minutes to manufacture a low quality glove, whereas 2 hours are needed to make a high quality glove. The plant works two 8-hour shifts. There is enough material to make 24 low quality gloves per day. It takes twice as much material to manufacture one high quality glove than it takes to manufacture one low quality glove. How many of each type of glove should the company make? (please show work)

Explanation / Answer

a) From the labor and output schedule, first compute the variable cost in total. This is composed of two parts, cost of raw materials and cost of labor. Then find the total cost as a sum of total variable cost and total fixed cost. Finally compute MC and AVC. A competitive firm has a supply curve which is rising portion of MC curve after cutting AVC (passing minimum of AVC).

We thus see that when price is 4, firm will supply 19 units when it looks at its MC schedule that has P very close to MC. Follow this and find the supply curve as

And

This is the supply curve for a firm

b) Multiply the output by 1000, to be produced by 1000 firms

c) Market quantity at equilibrium is 22000 units and equilibrium price is $5.

Labor Output Variable cost 1 Variable cost 2 TVC TFC Total cost MC AVC 0 0 0 0 0 5 5 1 1 10 1 11 5 16 11.0 11.00 2 4 20 4 24 5 29 4.3 6.00 3 10 30 10 40 5 45 2.7 4.00 4 15 40 15 55 5 60 3.0 3.67 5 19 50 19 69 5 74 3.5 3.63 6 22 60 22 82 5 87 4.3 3.73 7 24 70 24 94 5 99 6.0 3.92 8 25 80 25 105 5 110 11.0 4.20

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