A manufacturing firm is trying to decide if it should purchase an automated assembly line. The firm currently has employees completing the assembly portion of its production process. The workers are very efficient; a single worker can produce 5 assembled products per hour. An average worker earns $42.50 per eight hour day. The automated assembly line can produce 1600 assembled products in eight hours. The company estimates that the capital costs associated with the automated assembly line total $250 per hour.
a. Should the company use the automated assembly line? Why or why not?
b. Labor negotiations are beginning next month with the employees union. What would you as a negotiator propose as a maximum average wage per hour under a new contract? (In other words, at what hourly rate would it become more efficient to use the automated assembly line?)