Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 7

ANALYZING MANAGERIAL DECISIONS: Choosing the Mix of People and Machines in a Retail Supercenter
You manage a large retail supercenter that sells groceries and other products to 30,000 customers per week. Currently, you employ 80 check-out clerks and 10 automated check-out machines (customers scan and pay for their purchases without a clerk's assistance). Each clerk is paid wages and fringe benefits of $800 per week. It also costs you $800 per week to lease each machine (price includes installation, software support, and servicing). A vendor has 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 clerks. Should you lease the additional machines or continue to service your customers with your current input mix
You conduct additional analysis and estimate that you can service the 30,000 customers with the following combinations of clerks and machines. Calculate the total costs for each of these combinations. What combination of inputs serves the customers at the lowest possible cost
Suppose that the marginal product of clerks at the optimal input combination is 500. Explain in words what this means. What is the marginal product of machines at this point Explain why.