BUS 640 Managerial Economics Week 4 Exercises

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BUS 640 Managerial Economics
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Week Four
Exercises

Chapter 8
2. At a management luncheon, two managers were
overheard arguing about the following statement: “A manager should never hire
another worker if the new person causes
diminishing returns.” Is this statement
correct? If so, why? If not, explain why not.
Chapter 9
2. The Largo Publishing House uses 400 printers and 200 printing
presses to produce books. A printer’s wage rate is $20, and the price of a
printing press is $5,000. The last printer added 20 books to total output,
while the last press added 1,000 books to total output. Is the publishing house
making the optimal input choice? Why or why not? If not, how should the manager
of Largo Publishing House adjust input usage?

4. The MorTex Company assembles garments entirely
by hand even though a textile machine exists that can assemble garments faster
than a human can. Workers cost $50 per day, and each additional laborer can
produce 200 more units per day (i.e., marginal product is constant and equal to
200). Installation of the first textile machine on the assembly line will
increase output by 1,800 units daily. Currently the firm assembles 5,400 units
per day.

a. The financial analysis department at MorTex
estimates that the price of a textile machine is $600 per day. Can management
reduce the cost of assembling 5,400 units per day by purchasing a textile
machine and using less labor? Why or why not?

b. The Textile Workers of America is planning to
strike for higher wages. Management
predicts that if the strike is successful, the cost of labor will increase to
$100 per day. If the strike is successful, how would this affect the decision
in part a to purchase a textile machine? Explain.