You are a manager at Glass Inc.—a mirror and window supplier. Recently, you cond
ID: 1189628 • Letter: Y
Question
You are a manager at Glass Inc.—a mirror and window supplier. Recently, you conducted a study of the production process for your single-side encapsulated window. The results from the study are summarized in the table below and are based on the 8 units of capital currently available at your plant. Workers are paid $60 per unit, per unit capital costs are $20, and your encapsulated windows sell for $12 each. Given this information, what is your optimal labor and output decision?
Labor:
Output:
Given these decisions, what will be your profit?
$
(1)
(2)
(3)
Labor
L
Capital
K
Output
Q
0
8
0
1
8
10
2
8
30
3
8
60
4
8
80
5
8
90
6
8
95
7
8
95
8
8
90
9
8
80
10
8
60
11
8
30
(1)
(2)
(3)
Labor
L
Capital
K
Output
Q
0
8
0
1
8
10
2
8
30
3
8
60
4
8
80
5
8
90
6
8
95
7
8
95
8
8
90
9
8
80
10
8
60
11
8
30
Explanation / Answer
The optimal labor and output decision is based on the equality of marginal cost and marginal revenue. MC = MR
Marginal cost (MC): This is the additional cost for applying an additional input.
Marginal revenue (MR): This is the additional revenue for selling one additional unit.
MC at 5 to 6 labor unit is {(6 – 5) × $60 =} $60.
At this level MR is {(95 – 90) × $12 =} $60.
Therefore, MC = MR = $60.
Answer: Optimal labor unit = 6
Optimal output = 95
Profit = Total revenue – (Labor cost + Capital cost)
= (95 × $12) – {(6 × $60) + (8 × $20)}
= $1,140 – ($360 + $160)
= $620 (Answer)
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