The MorTex Company assembles garments entirely by hand even though a textile mac

Question

The MorTex Company assembles garments entirely by hand even though a textile machine exists which 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 question above to purchase the textile machine? Explain.

Explanation / Answer

we going to need 5400/1800 = 3 machines. The cost of each machine is $600 per day, so: Total Cost of Machines for 5400 unites = $1,800. Cost per garment = 0.333333. Management cannot reduce the cost of assembling 5400 units per day by p...

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