Question

You are a manager at Das Köstliche Waffelhaus, a small food manufacturing firm specializing in the production of frozen waffles. The CEO of the company has asked you assess optimal profitability at one of your factories (factory A). Currently, factory A contains 3 AquaPruf series stainless steel conveyor systems for mixing and baking the waffles. These machines have an estimated monthly maintenance cost of $1500 each. Your firm also has an installed freezer system which costs $2000 per month total to operate. Labor is paid $2000 per month (each). Monthly unit production is approximately equal to 5000*L0.25 where L = the number of workers on the factory floor. Identify the optimal number of workers to hire and resulting production levels when the price per unit of waffles is $3.50, $5.00 and $6.50 (round to the nearest unit).

Inputs		Input Costs (per unit)		Subtotal
Workers	1	$2,000.00		$2,000.00
Conveyor systems	3	$1,500.00		$4,500.00
Freezer systems	1	$2,000.00		$2,000.00
			Total Cost:	$8,500.00
Output		Revenues (per unit)		Subtotal
Units	5000	$3.50		$17,500.00
			Total Revenue:	$17,500.00
			Profit:	$9,000.00	<- put in your own formula

Answer 1

The objective of the following analysis is to state the optimal level of workers that need to be hired given different prices of the product produced and given production function.