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  3. a firm produces sunglasses on a single production

A firm produces sunglasses on a single production line served during one daily shift. The total...

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General Management

A firm produces sunglasses on a single production line servedduring one daily shift. The total output of glasses dependsdirectly on the number of labor-hours employed on the line. Maximumcapacity of the line is 100,000 glasses per month; this outputrequires 50,000 labor-hours per month. Total fixed costs come to$600,000 per month; the wage rate averages $12 per hour; and othervariable costs (materials, etc.)  average $6 per set ofglasses. The marketing department’s estimate of demand is P = 26–Q/ 20,000 where P denotes price in dollars and Q is monthlydemand.

a) How many additional sunglasses can be produced by an extrahour of labor? What is the marginal cost of an additional set ofglasses? As a profit maximizer, what price and output should thefirm set? Is production capacity fully utilized? What contributionto paying fixed costs does this product line provide?

b) The firm can increase capacity up to 100 percent byscheduling a night shift. The wage rate at night averages $16 perhour. Answer the questions in part (a) in light of this additionaloption.

c) Suppose demand for the firm's sunglasses falls permanently toP=20-Q/20,000. In view of this fall in demand, what output shouldthe firm produce in the short run? Explain.

Answer & Explanation Solved by verified expert
4.4 Ratings (762 Votes)
irm Z operating in a perfectly competitive market can sell as much or as little as it wants of a good at a price of 16 per unit Its cost function is C 50 4Q 2Q The associated marginal cost function is MC 4 4Q and the point of minimum average cost is Q min 5 AnswerA Determine the firms    See Answer
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