A dry cleaner currently has 10 workers and 4 machines.The workers' wage rate is $300 per worker and the rental rate for a machine is $500.The last worker added 600 units to total output
And the last machine also added 600 units to total output,and the last machine also added 600 units to total output.If the dry cleaner uses 11 workers and 3 machines instead,then
A)cost will be unchanged and output will increase by 300 units.
B)cost will be unchanged and output will decrease by 200 units.
C)output will be unchanged and cost will decrease by $500.
D)output will be unchanged and cost will decrease by $200.
E)none of the above

Question

Quizplus · Accepted Answer

First, let's calculate the cost of the current production setup:

Cost of workers = 10 workers x $300/worker = $3,000
Cost of machines = 4 machines x $500/machine = $2,000
Total cost = $5,000

Next, let's calculate the total output of the current production setup:

Total output = (10 workers x 600 units/worker) + (4 machines x 600 units/machine) = 8,400 units

Now, let's consider the new production setup with 11 workers and 3 machines.

Cost of workers = 11 workers x $300/worker = $3,300
Cost of machines = 3 machines x $500/machine = $1,500
Total cost = $4,800

We can see that the cost has decreased by $200.

To determine the output of the new production setup, we need to know the marginal product of labor and marginal product of capital:

Marginal product of labor = 600 units (since the last worker added 600 units to total output)
Marginal product of capital = 600 units (since the last machine added 600 units to total output)

Assuming diminishing marginal returns, adding an extra worker would result in a lower marginal product than the last worker added:

Marginal product of labor for 11 workers < 600 units

Similarly, adding an extra machine would result in a lower marginal product than the last machine added:

Marginal product of capital for 3 machines < 600 units

Since we know that total output cannot increase and the cost has decreased, the only possible answer is D: output will be unchanged and cost will decrease by $200.

A Dry Cleaner Currently Has 10 Workers and 4 Machines