Short-run economic decisions, Microeconomics

Assignment Help:

Weston Industrial Manufacturing Products ("WIMP") has the capability to produce a variety of industrial products, including a number of types of widgets. In the past, WIMP has manufactured 2 different types of widget (Type A and Type B). Each of these is sold in a market that approximates a perfectly competitive market. Production is limited to standard shifts operating Monday through Friday due to a contract with the relevant labor union.

The average labor rate is $10 per hour and the company currently employs 10 laborers who work a single 8-hour shift each day. The company employs several salaried marketing and administrative employees. The following table provides price and cost data collected from the accounting department:

WIMP: Per-Unit Price and Cost Data by Widget Type

 

Type A

Type B

Gizmo Widget

Price

100

90

See marketing estimates

 

 

 

 

Labor

40

20

20

Materials

20

40

50

SGA

8

4

4

Depreciation

20

18

40

 

 

 

 

WIMP has recently developed a new widget, the "Gizmo Widget." The Gizmo Widget is designed to serve a niche demand segment in the manufacturing industry. Labor costs are relatively low but this is partially offset by higher materials costs.

The company recently upgraded machinery to enable the Gizmo Widget to be produced and this is reflected in higher depreciation charges. WIMP's marketing staff produced the following sales projections regarding the Gizmo Widget:

Price

Projected Weekly Sales (# units)

180

50

160

90

140

120

120

140

100

160

80

170

In the short run, WIMP cannot add to its labor force of ten employees and consequently there are only 80 labor hours available per day to allocate toward widgets.

1.      Which costs in the table of accounting information are relevant for making short-run economic decisions regarding the production mix of widgets? Explain and show.

2.      Ignore the Gizmo Widget for the moment. How should WIMP be allocating production between the Type A and Type B widgets?
Be sure to briefly explain your approach/reasoning.

3.      What is the profit maximizing number of Gizmo Widgets that should be introduced? Be sure to account for the fact that Gizmo Widgets displace other types of widgets. Again, be sure you provide a brief explanation of your approach/reasoning.


Related Discussions:- Short-run economic decisions

Significance of education to economic development, Normal 0 fal...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Gdp price level, GDP Price Level At the equilibrium level of income agg...

GDP Price Level At the equilibrium level of income aggregate spending in the economy equals aggregate output. All along, we have assumed that the general price level remains un

Rent, what is modern theory

what is modern theory

, #questionLook up the real GDP of the U.S. for the 4th quarter of 2007 an...

#questionLook up the real GDP of the U.S. for the 4th quarter of 2007 and compare it with the real GDP for the 2nd quarter of 2012. What does this tell you about the performance of

Price change, 1.  Seller has ample time to adjust to price change. 2.  B...

1.  Seller has ample time to adjust to price change. 2.  Buyer's response to small price change is significant. 3.  Buyers are faced with many options when deciding to make a

Compare traditional modern and engineering cost theory, compare traditional...

compare traditional modern and engineering cost curves

Economic acivity, The prevention of major swings in economic activity can b...

The prevention of major swings in economic activity can be handled most easily by the

Point elasticity of demand for demand function Q=10-2p, calculate point ela...

calculate point elasticity of demand function Q=10-2p for decrease in price from Rs3 to Rs2

Economics, #question.what is meant by ppc?illustrate the central problems o...

#question.what is meant by ppc?illustrate the central problems of aneconomy with this curve.

Decolonialisation of the developing world, Normal 0 false fal...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd