Question

The Missing Link​ Chain-Link Fence Company is trying to determine how many​ chain-link fabricating machines to buy for its factory. If we define a​ chain-link fence of some specified length to be equal to one unit of​ output, the price of a new fabricating machine is 60 units of​ output, and the price of a​ one-year-old machine is 48 units of output. These relative prices are expected to be the same in the future. The expected future marginal product of fabricating​ machines, measured in units of​ output, is:

Answer 1

(1). Depreciation = 20%.

(2). user cost = 18 units.

(3). number of machines that will allow Missing Link to maximize its profit = 73.5 units.

Step-by-step explanation:

Step one: the first step in solving this question is to calculate or determine the value of depreciation which can can be calculated by using the formula below;

Depreciation =( the price of a new fabricating machine ) - ( the price of one year old fabricating machine)/ the price of a new fabricating machine × 100.

Depreciation = 60 - 48/ 60 × 100 = 20%.

Step two: determine the user cost.

Thus, the user cost = (0.10 + 0.20) × 60 = 18 units.

Step three: detemine the number of machines that will allow Missing Link to maximize its profit.

Recall that the expected future marginal product of fabricating machines, measured in units of output, = 165 - 2K.

Thus, 165 - 2K = 18 units.

- 2K = 18 - 165.

K = 73.5 units.