Question

You were recently hired to replace the manager of the Roller Division at a major conveyor-manufacturing firm, despite the manager’s strong external sales record. Roller manufacturing is relatively simple, requiring only labor and a machine that cuts and crimps rollers. As you begin reviewing the company’s production information, you learn that labor is paid $12 per hour and the last worker hired produced 95 rollers per hour. The company rents roller cutters and crimping machines for $15 per hour, and the marginal product of capital is 135 rollers per hour. Should you change the mix of capital and labor, and if so, how should it change?

Answer 1

I will. I would rent more machines to cut and crmpis the roller until it matches the productivity per dollar of labor

Step-by-step explanation:

productivity per dollar of labor hour:

95 roller / $12 = 7.9166 roller per dollar

productivity per dollar of capital:

135 roller / $15 = 9 roller per dollar

The company should icnrease their capital stock as it is above the prodcutivity of labor. It should increase it until it gets to an indifference point betwene hiring labor or capital.