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A hamburger factory produces 40,000 hamburgers each week. The equipment used costs $5,000 and will remain productive for 4 years. The labor cost per year is $9,500.
a. What is the productivity measure of "units of output per dollar of input" averaged over the 3-year period?
b. We have the option of $10,000 equipment, with an operating life of 5 years. It would reduce labor costs to $6,000 per year. Should we consider purchasing this equipment (using productivity arguments alone)?
Using the data, suppose the manufacturer has an inflated demand forecast as follows: Quantity Probability 2,200 5% 2,300 6% 2,400 10% 2,500 17% 2,600 30% 2,700
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