Question
Can you show a breakdown of you solve the following problem: A car repair shop employs 15 mechanics and uses 5 lifting platforms. On an
Can you show a breakdown of you solve the following problem:
A car repair shop employs 15 mechanics and uses 5 lifting platforms. On an average day, 10 cars are being fixed. The cost of a platform (on a daily basis) is $100; the daily wage of mechanics is $200. The shop is charging $500 for a repair job. [for simplicity, assume that all repair jobs are the same]
When one of the platforms breaks, only 8 cars per day can be repaired. What is the marginal product of capital (lifting platforms)?
B - After the platform is repaired (back to 5 working ones), 2 mechanics fall sick, and the number of cars that can be repaired on an average day falls to 8.5. What is the marginal product of labor?
C - The repair shop is wondering if it should hire more workers in the short run, (i.e., with the number of platforms fixed at 5). A consultant tells them their price elasticity of demand is about -2. Based on the information you have and your results from B, should the shop hire more mechanics at the current daily wage rate of $200?
D - In the long run, should the car repair shop change its mix of capital and labor? If so, in which direction?
Explain how this change in mix would affect the marginal products of labor and capital that you computed in A. and B. [note: solve this question assuming that output is fixed at the current level. Use your responses to A. and B.]
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