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34. A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: lots of labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method choices are: Method 1: 50 units of labor, 10 units of capital Method 2: 20 units of labor, 40 units of capital Method 3: 10 units of labor, 70 units of capital If hiring labor for the winter costs $100/unit and a unit of capital costs $400, what production method should be chosen

Respuesta :

Answer: The last part of the question is missing which says ; what production method should be chosen? what production method should be chosen if the cost of labor rises to $200/unit.?

Explanation:

Since we are given that cost of labor $100/unit and cost of capital is $400/unit and since it is apparent that labor is cheaper than capital, hence method 1 should be chosen.

  • total cost of production in method 1;

= ($50 x $100) + ($10 x $400) = $9000

  • total cost of production in method 2;

= ($20 x $100) + ($40 x $400) = $18000

  • total cost of production in method 3;

= ($50 x $100) + ($70 x $400) = $29000

As such, method 1 is the cheapest and should be chosen.

Similarly, if the price of labor rises to $200, then  the total cost of production is calculated thus ;

  • total cost of production in method 1;

= ($50 x $200) + ($10 x $400) = $14000

  • total cost of production in method 2;

= ($20 x $200) + ($40 x $400) = $20000

  • total cost of production in method 3;

= ($10 x $200) + ($70 x $400) = $30000

even as the cost of labor increases to $200, also method 1 should be chosen as it has the lowest total cost of production.

temdan2001

Answer: method 1

Explanation: for method 1:

Labour = 50 × 100 = 5000

Capital = 10 × 400 = 4000

Total = 9000 dollars

: for method 2:

Labour = 20 × 100 = 2000

Capital = 40 × 400 = 16000

Total = 18000 dollars

: for method 3:

Labour = 10 × 100 = 1000

Capital = 70 × 400 = 28000

Total = 29000 dollars

Method 1 is therefore least expensive.

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