You are a manager at the Donnelly Corporation-a mirror and window supplier to th
ID: 1248948 • Letter: Y
Question
You are a manager at the Donnelly Corporation-a mirror and window supplier to the major automakers. Recently, you conducted a studey of the production process for your DireactBond single-side encaspulated window (a product taht was first introduced on Chrysler minivans). The results from the study are summarized in the chart on the next page, and are based on the 5 units of capital currently available at your plant. Workers are paid $50 per unit, per-unit capital costs are $10, and your encapsulated window sell for $5 each. Given this information, optimize your human resource and production decisions. Do you anticipate earning a profit or a loss? Explain carefully.Labor output
0 0
1 10
2 30
3 60
4 80
5 90
6 95
7 95
8 90
9 80
10 60
11 30
Explanation / Answer
From the table, we see the maximum output of 95 occurs when L=6. So, we maximize output when L=6 and K=5 Here: w=50 r=10 At this point, we can calculate our profit by: Profit = P*Q-wL-rK Profit=5*95-50*6-10*5=125 Since this is positive, we should expect a positive profit of $125.
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