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Evaluating Technology Choice After a Wage Increase
A textile factory manager must choose a production method to produce a standard batch of cloth. The manager is currently considering two options:
- Method P: Requires 4 workers and 3 tons of coal.
- Method Q: Requires 2 workers and 5 tons of coal.
The current market wage for a worker is £8, and the price of coal is £6 per ton. An executive argues that since both methods use the same total number of input units (Method P: 4+3=7; Method Q: 2+5=7), the choice of technology is irrelevant to the cost.
Critically evaluate the executive's argument. Determine which production method the manager should choose to minimize costs and justify your recommendation with specific calculations. Explain the economic principle that is being overlooked in the executive's reasoning.
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A firm needs to produce 100 meters of cloth. It has access to four different production technologies, each requiring a different combination of labor and coal, as shown in the table below. If the wage for a worker is £8 and the price of coal is £6 per ton, which technology should the firm choose to minimize its production costs?
Evaluating a Production Decision After a Wage Increase
A textile firm is considering two methods to produce a standard batch of cloth. Method A requires 3 workers and 4 tons of coal. Method B requires 2 workers and 5 tons of coal. The price of coal is fixed at £6 per ton. If the wage for a worker increases from £4 to £8, it would be a cost-minimizing decision for the firm to switch from using Method A to Method B.
Impact of Wage Increase on Technology Choice
Evaluating Technology Choice After a Wage Increase
A firm can use different technologies to produce a set amount of output. Given a wage of £8 per worker and a coal price of £6 per ton, match each production technology with its correct total cost.
A manufacturing firm is evaluating two production methods to produce a specific quantity of goods.
- Method X uses 4 workers and 2 tons of coal.
- Method Y uses 2 workers and 5 tons of coal.
The price of coal is fixed at £6 per ton. To minimize costs, the firm would be indifferent between Method X and Method Y when the wage per worker is £____.
Evaluating a Strategic Production Shift
A textile factory manager must choose a technology to produce a standard batch of cloth. The price of coal is £6 per ton. The manager has two options:
- Technology A: Requires 6 workers and 2 tons of coal.
- Technology B: Requires 2 workers and 7 tons of coal.
Previously, when the wage was lower, the manager correctly used Technology A. Now, the wage has increased to £8 per worker. The manager makes the following claim: "Even with the higher wage, Technology A is still the better choice because it uses significantly less coal."
Which of the following provides the most accurate evaluation of the manager's claim from a cost-minimization perspective?
A firm produces a standard batch of cloth using a technology that requires 4 workers and 3 tons of coal. Initially, the wage is £4 per worker and the price of coal is £6 per ton. The wage then increases to £8 per worker, while the price of coal remains unchanged. Which of the following alternative technologies, if it became available, would represent a logical switch for the firm to minimize its costs in the new price environment?