Cost minimization problem of The Mor Tex Company.
The Mor Tex Company assembles Garments by hand even though a textile machine exists that can assemble garments faster than a human. Workers cost $50 per day and each additional laborer can produce 200 more units per day (i.e. marginal product is constant and equal to 200) Installation of the first textile machine on the assemble line will increase output by 1,800 units daily. Currently the firm assembles 5400 units per day.
a. The financial analyst dept estimates the cost of textile machine $600 every day. Can mgt reduce the price of assembling 5,400 units per day by purchasing the machine and using less labor?
b. The textile workers of America are planning to strike for higher wages. Mgt predicts that if the strike is successful, the cost of labor will increase $100 per day. If the strike is successful explain how would this effect the decision in part a. to purchase a textile machine?