A manager in charge of new product development can hire engineers and market res
ID: 1134784 • Letter: A
Question
A manager in charge of new product development can hire engineers and market researchers. The annual salary of an engineer is $40,000, while a market researcher receives $20,000. The marginal contributions of engineers and market researchers are: Engineers Market Researchers Additional New Products Additional Worker Worker New Products 50 40 st nd 15 rd 30 rd 10 th th 20 th 10 th Based on the above information, if the manager currently hires four engineers and one market researcher, what must be true? She is making the correct decision because MPE MPR. More new products would be developed if she hires more engineers and fewer market researchers. More new products would be developed if she hires fewer engineers and more market researchers. She is not making the correct decision because engineers are more productive than market researchers at all levels of output.Explanation / Answer
Engineers (E) Salary = 40,000
Market Researchers (R) Salary = 20,000
Worker
Additional
New Products
MU of E/Price
Worker
Additional
New Products
MU of E/Price
1
50
50/40,000=0.00125
1
20
20/20,000=0.001
2
40
40/40,000=0.001
2
15
15/20,000=0.00075
3
30
30/40,000=0.00075
3
10
10/20,000=0.005
4
20
20/40,000=0.005
4
5
5/20,000=0.00025
5
10
10/40,000=0.0025
5
2
2/20,000=0.0001
As per the law, the equilibrium condition is Mux/Price of X should be equal to MUy/Price of Y.
Based on the above information, if the manager currently hires four engineers and one market researcher, what must be true?
Answer – More new products would be developed if she hires fewer engineers and more market researchers.
If she hires 4 engineers and one market researcher, it indicates that she is giving importance on the production rather than market research. If she employ more market researchers more new products can be produced.
In this question because the budget is not given we cannot calculate the optimal combination of engineers and market researchers.
Engineers (E) Salary = 40,000
Market Researchers (R) Salary = 20,000
Worker
Additional
New Products
MU of E/Price
Worker
Additional
New Products
MU of E/Price
1
50
50/40,000=0.00125
1
20
20/20,000=0.001
2
40
40/40,000=0.001
2
15
15/20,000=0.00075
3
30
30/40,000=0.00075
3
10
10/20,000=0.005
4
20
20/40,000=0.005
4
5
5/20,000=0.00025
5
10
10/40,000=0.0025
5
2
2/20,000=0.0001
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