Smokey\'s Garage, Inc., provides routine auto diagnostics for customers in the A
ID: 1181456 • Letter: S
Question
Smokey's Garage, Inc., provides routine auto diagnostics for customers in the Atlanta metropolitan area. Tests are supervised by skilled mechanics using equipment produced by two leading competitors in the auto test equipment industry. Records for the current year show that the monthly marginal product of Sunny Tune System (STS) is 800 tests per month and 1200 tests per month on the Car Care Tower System (CCT). The STS is leased for $8,000 per month (PSTS), and the CCT is leased at a rate of $12,000 per month (PCCT). Each routine diagnostic test is sold to customers for $15.
A. What is the MPSTS/ PSTS (the MPSTS divided by the PSTS) Express as a decimal not as a fraction.
Answer
B. What is the MPCCT/ PCCT (the MPCCT divided by the PCCT) Express as a decimal not as a fraction.
Answer
C. What is the MRTS between the CSS and the STS? Express as a decimal not as a fraction.
Answer
D. For the current monthly output are they using the least cost combination of the two machines? Answer yes or no.
Answer
E. What is the MRP of the STS? NO $ or decimal points in your answer.
Answer
F. What is the MRP of the CCS? NO $ or decimal points in your answer.
Answer
G. If Smokey wished to maximize profit is he using the optimal amount of STS or should he lease more or less of the STS.
Your answer should be expressed as more, less or no change if he is currently using the optimal amount.
Answer
F. If Smokey wished to maximize profit is he using the optimal amount of STS or should he lease more or less of the STS.
Your answer should be expressed as more, less or no change if he is currently using the optimal amount.
Answer
Explanation / Answer
A. What is the MPSTS / PSTS (the MPSTS divided by the PSTS) Express as a decimal not as a fraction.
MPSTS / PSTS = 800/8000
= 0.1
B. What is the MPCCT / PCCT (the MPCCT divided by the PCCT) Express as a decimal not as a fraction.
MPcct / Pcct = 1200/12000
= 0.1
C. What is the MRTS between the CSS and the STS? Express as a decimal not as a fraction.
Answer =1.5
MRTS (CSS , STS)= MPcss/ MPsts
= 1200/800
= 1.5
D. For the current monthly output are they using the least cost combination of the two machines? Answer yes or no.
Answer : Yes
Least cost combinations achieved when; MPSTS / PSTS = MPcct / Pcct = 1
We can see from the above calculations they are equal to 0.1 = 0.1 = 1
E. What is the MRP of the STS? NO $ or decimal points in your answer.
Answer: 12,000
MRP is the marginal revenue product = MPsts * price of output
= 800 * $15
=12,000
F. What is the MRP of the CCS? NO $ or decimal points in your answer.
Answer 18,000
MRP is the marginal revenue product = MPccs * price of output
= 1200 * $15
=18,000
G. If Smokey wished to maximize profit is he using the optimal amount of STS or should he lease more or less of the STS.
Your answer should be expressed as more, less or no change if he is currently using the optimal amount.
Answer: less
maximum profit achieved when MRPsts = MRPccs
MRPsts = 12,000
MRPccs= 18,000
As the MRP of STS is lower than MRPccs; therefore, the firm has to decrease the use of STS. This will increase the MRP of STS. This is because MPsts will increase with a decrease in output.
F. If Smokey wished to maximize profit is he using the optimal amount of CCS or should he lease more or less of the CCS.
Your answer should be expressed as more, less or no change if he is currently using the optimal amount.
Answer: more
MRPsts = 12,000
MRPccs= 18,000
As the MRP of ccs is higher than MRPsts; therefore, the firm has to increase the use of CCS. This will decrease the MRP of ccs. This is because MPccs will decline with more usage..
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.