Question
Last Printer Standing, Incorporated (LPS Ink) uses 400 printers and 200 printing presses to print and bind books. Suppose your compensation rate for employees on
Last Printer Standing, Incorporated (LPS Ink) uses 400 printers and 200 printing presses to print and bind books. Suppose your compensation rate for employees on the production line is $40/hour and the hourly rental rate of a printing press is $3,000. The last employee-hour added 20 books to total output, while the last hour of printing press usage added 1,000 books to the total output. (These figures will not hold true for inframarginal employee hours or printer usage since the Law of Diminishing Marginal Product holds for both types of inputs.)
Is LPS Ink making the optimal input choice? Why or why not? If not, how should the manager of LPS Ink adjust input usage to produce the current production level at the lowest possible total cost? (i.e., fewer, or more, or the same number of printers? Fewer, or more, or the same number of employees?) You may assume that there is some substitution of labor for capital and vice versa possible in this production process. Explain.
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