Question
1. You are a manager of a local Walmart store which sells groceries and other products to 30,000 customers per week. Currently, you employ 80
1. You are a manager of a local Walmart store which sells groceries and other products to 30,000 customers per week. Currently, you employ 80 cashiers and 10 automated check-out machines (customers scan and pay for their purchases without a cashiers assistance). Each cashier is paid wages and fringe benefits for $800 per week. It also costs you $800 per weeks to lease each machine (price includes installation, software support, and servicing). A vendor offered to lease you additional machines at this price. You estimate that by leasing 10 more machines you can meet your service requirements with 30 fewer cashiers. Should you lease the additional machines or continue to service your customers with your current input mix?
a. You estimate that you can service 30,000 customers with the following combinations of cashiers and machines. What combination of inputs has the lowest possible cost?
Cashiers | Machines |
80 | 10 |
50 | 20 |
30 | 30 |
22 | 40 |
15 | 50 |
12 | 60 |
b. Plot the input combinations in the table on a graph that contains cashiers on the vertical axis and machines on the horizontal axis. Connects the points to draw an isoquant curve. Add the cost minimizing isocost curve to the graph (you can derive this line from the input prices and the minimized total cost). What is slope of the isocost curve? What is the slope of the isoquant curve at the optimal input combination?
c. Suppose the marginal product of cashiers at the optimal input combination is 500. What does this mean? What is the marginal product of machines at this point?
d. Are there any other factors that should be considered in making this decision on the optimal mix of machines and cashiers.
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