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Impact of Input Price Changes on Technology Choice
A bicycle manufacturer aims to produce 1,000 bikes per month while maximizing its profit. The company currently uses a production technology that relies heavily on skilled labor and uses relatively few automated machines. An alternative technology exists that can also produce 1,000 bikes per month, but it uses many automated machines and requires far less skilled labor.
Imagine a new policy causes the wages for skilled labor to double. Analyze how this policy change would influence the manufacturer's choice of production technology. What specific calculations would the company need to perform to determine the most profitable course of action?
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A firm's objective is to produce 100 widgets at the highest possible profit. It has identified four potential production methods, each requiring different amounts of labor and raw materials to produce the same 100 widgets, as shown in the table below. Assuming both labor and raw materials have a positive cost, which production method would the firm never choose, regardless of the specific costs of labor and materials?
Method Units of Labor Tons of Raw Material A 6 3 B 4 5 C 5 6 D 3 7 A company's goal is to maximize its profit. It needs to produce 500 units of a product per week. The weekly wage for a worker is $400, and the weekly rental cost for a specialized machine is $1,000. The company has identified four different production technologies that can each produce the required 500 units. Based on the information in the table, which technology should the company choose to achieve its goal?
Technology Number of Workers Number of Machines A 20 5 B 10 8 C 30 2 D 15 6 Evaluating a Production Technology Decision
Profit Maximization and Cost Minimization
Evaluating a Production Technology Decision
A firm seeking to maximize its profit for a specific quantity of output will always select the production technology that requires the smallest quantity of the most expensive input.
Impact of Input Price Changes on Technology Choice
Evaluating a Business Decision for Profit Maximization
A manufacturing firm wants to produce a specific quantity of goods and has narrowed its options to two efficient production technologies.
- Technology X uses 15 units of labor and 4 units of capital.
- Technology Y uses 10 units of labor and 7 units of capital.
To maximize its profit for this output level, the firm must choose the technology with the lower total cost. Under what condition should the firm choose Technology Y?
Critiquing a Production Decision
Firms' Incentive to Weaken Competition