Question

Lobo Lighting Corporation currently employs 100 unskilled laborers, 80 factory technicians, 30 skilled machinists, and 40 skilled electricians. Lobo management believes that the marginal product of the last unskilled laborer is 520 lights per week, the marginal product of the last factory technician is 350 lights per week, the marginal product of the last skilled machinist is 420 lights per week, and the marginal product of the last skilled electrician is 375 lights per week. Unskilled laborers earn $400 per week, factory technicians earn $500 per week, machinists earn $700 per week, and electricians earn $750 per week.

Calculate the marginal product per dollar input cost for all worker types.

	Marginal Product per Dollar Input Cost
Unskilled laborers
Factory technicians
Skilled machinists
Skilled electricians

Is Lobo using the lowest-cost combination of workers to produce its targeted output?

No

Yes

Answer 1

Marginal product per dollar input cost is calculated as follows -

Marginal product per dollar input cost = Marginal product of input/Price of input

Marginal product of the last unskilled laborer = 520

Wage of unskilled laborer = $400

Marginal product per dollar of unskilled laborer = Marginal product of the last unskilled laborer/Wage of unskilled laborer = 520/400 = 1.3

Marginal product of the last factory technician = 350

Wage of factory technician = $500

Marginal product per dollar of factory technician = Marginal product of the last factory technician/Wage of factory technician = 350/500 = 0.7

Marginal product of the last skilled machinist = 420

Wage of skilled machinist = $700

Marginal product per dollar of skilled machinist = Marginal product of the last skilled machinist/Wage of skilled machinist = 420/700 = 0.6

Marginal product of the last skilled electrician = 375

Wage of skilled electrician = $750

Marginal product per dollar of skilled electrician = Marginal product of the last skilled electrician/Wage of skilled electrician = 375/750 = 0.5

Following is the complete table -

	Marginal Product per Dollar Input Cost
Unskilled laborers	1.3
Factory technicians	0.7
Skilled machinists	0.6
Skilled electrician	0.5

The Lobo would be using the lowest-cost combination of workers to produce its targeted output when at the targeted output, marginal product per dollar of each input would be same.

The above table shows that, at the targeted output, the marginal product per dollar of each input is not same.

So,

Lobo is not using the lowest-cost combination of workers to produce its targeted output.

Hence, the correct answer is the option (1) [NO].