1. In 1986, Scott Stillinger developed the Koosh ball and founded OddzOn Products, Inc. to sell...

1. In 1986, Scott Stillinger developed the Koosh ball and founded OddzOn Products, Inc. to sell the toy. Assume that the Koosh ball production function is: Q = L*(32-L) Which would make the marginal product of labor equal to: MPL = 32-2L The minimum wage is $7.25 and the price of a Koosh ball is $3.50. a. If Stillinger is a profit-maximizing employer, how many workers will he hire? Show your work and briefly explain why this is the optimal number of workers.

b. Assume that in the long run Stillinger begins employing more capital. If the price of capital is cheaper than workers, what will happen to labor demand? Briefly explain using scale and substitution effects.

Expert Solution

Answer.b In the long run, firms maximize profit by choosing the optimal combination of labor and capital to produce a given amount of output. It’s possible that an automobile company could manufacture 1,000 cars using only expensive, technologically advanced robots and machinery (capital) that do not require any human participation. It’s also possible that the company could produce the same number of vehicles using only employee work (labor), without any assistance from machines or technology.

Firms use the marginal decision rule in order to decide what combination of labor, capital, and other factors of production to use in the creation of output. The marginal decision rule says that a firm will shift spending among factors of production as long as the marginal benefit of such a shift exceeds the marginal cost. Imagine that a firm must decide whether to spend an additional dollar on labor. To determine the marginal benefit of that dollar, we divide the marginal product of labor (MP_L) by it’s price (the wage rate, P_L): MP_L/P_L. If capital and labor are the only factors of production, then spending an additional $1 on labor while holding the total cost constant means taking $1 out of capital. The cost of that action will be the output lost from cutting back on capital, which is the ratio of the marginal product of capital (MP_K) to the price of capital (the rental rate, P_K). Thus, the cost of cutting back on capital is MP_K/P_K.

Rahul Sunny answered 2 years ago

Par, inc. is a manufacturer of golf equipment and has developed a new golf ball that...

Par, inc. is a manufacturer of golf equipment and has developed a new golf ball that has been designed to provide ‘extra distance.” In a test if driving distance using a mechanical driving device, a sample of Par golf balls was compared with a sample of golf balls made by Rap, Ltd., a competitor (given in the table below). Also, based on the data from previous driving distance tests, the two population standard deviations are known with s1= 15 yards...

InventBear Inc. is planning to establish a subsidiary in Australia to produce and sell gaming products...

InventBear Inc. is planning to establish a subsidiary in Australia to produce and sell gaming products locally. The project will end in three years and the subsidiary will be sold to an Australian firm for A$5 million at the end of the project. The salvage value is net of tax and will not be subject to withholding tax. InventBear estimates that, after paying for the income tax, the Australian subsidiary can remit A$5,450,000 to the parent every year for the...

1. Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this,...

1. Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company’s profits are driven by the amount of work Tom does. If he works 40 hours each week, the company’s EBIT will be $480,000 per year; if he works a 50-hour week, the company’s EBIT will be $550,000 per year. The company is currently worth $3.3 million. The company needs a cash infusion of $1.7 million, and it can issue equity or issue...

Novak Miniature Golf and Driving Range Inc. was opened on March 1 by Scott Verplank. The...

Novak Miniature Golf and Driving Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March. Mar. 1 Invested $52,900 cash in the business in exchange for common stock. 3 Purchased Michelle Wie’s Golf Land for $36,660 cash. The price consists of land $10,170, building $20,650, and equipment $5,840. (Make one compound entry.) 5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,540. 6 Paid...

SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has developed an...

SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has developed an aggregate forecast: Month Mar Apr May Jun Jul Aug Sep Total Forecast 50 44 55 60 50 40 51 350 Use the following information to develop aggregate plans. Regular production cost $ 80 per unit Back-order cost $ 20 per unit Overtime production cost $ 120 per unit Beginning inventory 0 units Regular capacity 40 units per month Overtime capacity 8 units per month...

Problem 1-04A Skysong Inc., a provider of consulting services, was founded on October 1, 2022. At...

Problem 1-04A Skysong Inc., a provider of consulting services, was founded on October 1, 2022. At the end of the first month of operations, the company decided to prepare an income statement, retained earnings statement, and balance sheet using the following information. Accounts payable $ 3,700 Supplies $ 2,650 Interest expense 350 Supplies expense 360 Equipment (net) 48,000 Depreciation expense 260 Salaries and wages expense 2,800 Service revenue 19,540 Bonds payable 21,800 Salaries and wages payable 590 Unearned service revenue...

Question #4: Georgia Pacific, Inc. produces a number of products that the company can sell at...

Question #4: Georgia Pacific, Inc. produces a number of products that the company can sell at the split-off point or the company can process the products further and then sold. Use the data below to answer the following questions: Sales Value Additional Sales Value after Product at Split-off Variable Costs Further Processing New lumber $79,800 $12,000 $89,000 Weathered lumber 62,000 14,100 86,800 Pulp 51,000 9,800 65,000 a) What is the additional profit that would result...

Campfire Products sell camping equipment. One of the ocmpany's products, a camping lantern, sell for $100...

Campfire Products sell camping equipment. One of the ocmpany's products, a camping lantern, sell for $100 per unit. Variable expenses are $65 per lantern, and fixed expenses associated with the lantern total $140,000 per month. a. Comopute the company's break even point in number of lanterns and in total sales dollars. b. At present, the company is selling 8,000 lanterns per month. The sales manager is convinced that at 10% reduction in the selling price will result in a 25%...

BUSINESS LAW; write at least 4 pages (A) George writes to scott offering to sell her...

BUSINESS LAW; write at least 4 pages (A) George writes to scott offering to sell her designer Handbag for $5, 000. scott receives the letter on November 3 2019 and on November 5 2019 posts a letter accepting george's offer and sends a cheque of $5, 000 in the meantime, however George has sold the designer bag to her friend Mark for $6, 000 believing that Scott was not interested. George received Scott’s cheque on November 7 2019. With the...

Northwest Industrial Products Corporation two products 1 and product L Product is expected to sell 50,000...

Northwest Industrial Products Corporation two products 1 and product L Product is expected to sell 50,000 units and product L 100,000 units next year . A unit of either product requires 0.2 direct labor .The company's total manufacturing overhead for the year is expected to be $2925000 Required : The company currently applies manufacturing overhead to products using direct labour hours the allocation If this method is followed how overhead cost will applied to each product? Compute both the overhead...

Question