Answer to Question #25410 in Economics of Enterprise for michelle corbett

Question

total fixed cost = 600k per month, max capacity = 120k watches, output requires 60k hrs, wage rate =8.00 hr, demand is P=28-Q/20k. how many additional watch can be produced with an extra hr of labor? what is the marginal cost of additional watches/? as a profit maximizer what price and output should the firm set? is production capacity fully utilized? what contribution does the line provide?

Answer 1

1) 120k/60k = 2 additional watch can be produced with an extra hr of labor
2) MC = change in TC/change in Q. One additional watch needs additional (8/2)/1 = 4 dollars of the marginal cost.
3) The price can vary between 22 and 28 dollars per watch. A profit maximizer is in the point, where MR = MC = P, so the best price is 22 with the max output of 120k.
4) The production capacity is fully utilized.