3. Least-cost combination of inputs using isoquants Suppose you are a department manager in a large consulting firm, and you have an assignment to produce a customized automated billing system for a client in the next week. Your boss asks you to find the least costly way to produce the billing system. To produce the billing system, you'll need to use computers and programmers. The blue isoquant curve on the following graph shows the combinations of computers and programmers that you can use to create the billing system in a week. CAPITAL (Number of computers) 1 10 9 o 0 1 2 3 4 5 6 7 8 9 10 LABOR (Number of programmers) A TC 1= Each computer has a rental rate of $600 per week (r = $600), and each programmer costs $600 per week (w= $600). Calculate the cost of each of the purple points (diamond symbols) on the isoquant curve on the preceding graph. The least-cost input combination is and for a total cost of On the preceding graph, use the green line (triangle symbol) to show the line of equal total cost (TC) indicating the possible combinations of computers and programmers that minimizes total costs. Hint: For example, if you've found that the least expensive option for completing the automated billing system costs $1,000, then you should plot the combinations of computers and programmers that cost $1,000. To minimize costs, you know that the rate of technical substitution of labor for capital must be equal to rental rate of capital. at this point, given the stated wage and
3. Least-cost combination of inputs using isoquants Suppose you are a department manager in a large consulting firm, and you have an assignment to produce a customized automated billing system for a client in the next week. Your boss asks you to find the least costly way to produce the billing system. To produce the billing system, you'll need to use computers and programmers. The blue isoquant curve on the following graph shows the combinations of computers and programmers that you can use to create the billing system in a week. CAPITAL (Number of computers) 1 10 9 o 0 1 2 3 4 5 6 7 8 9 10 LABOR (Number of programmers) A TC 1= Each computer has a rental rate of $600 per week (r = $600), and each programmer costs $600 per week (w= $600). Calculate the cost of each of the purple points (diamond symbols) on the isoquant curve on the preceding graph. The least-cost input combination is and for a total cost of On the preceding graph, use the green line (triangle symbol) to show the line of equal total cost (TC) indicating the possible combinations of computers and programmers that minimizes total costs. Hint: For example, if you've found that the least expensive option for completing the automated billing system costs $1,000, then you should plot the combinations of computers and programmers that cost $1,000. To minimize costs, you know that the rate of technical substitution of labor for capital must be equal to rental rate of capital. at this point, given the stated wage and
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 33P: Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand...
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Transcribed Image Text:3. Least-cost combination of inputs using isoquants
Suppose you are a department manager in a large consulting firm, and you have an assignment to produce a customized automated billing system for
a client in the next week. Your boss asks you to find the least costly way to produce the billing system. To produce the billing system, you'll need to
use computers and programmers. The blue isoquant curve on the following graph shows the combinations of computers and programmers that you
can use to create the billing system in a week.
CAPITAL (Number of computers)
1
10
9
o
0
1
2
3
4
5
6
7
8
9
10
LABOR (Number of programmers)
A
TC
1=
Each computer has a rental rate of $600 per week (r = $600), and each programmer costs $600 per week (w= $600). Calculate the cost of each of
the purple points (diamond symbols) on the isoquant curve on the preceding graph.
The least-cost input combination is
and
for a total cost of
On the preceding graph, use the green line (triangle symbol) to show the line of equal total cost (TC) indicating the possible combinations of
computers and programmers that minimizes total costs.
Hint: For example, if you've found that the least expensive option for completing the automated billing system costs $1,000, then you should plot the
combinations of computers and programmers that cost $1,000.
To minimize costs, you know that the rate of technical substitution of labor for capital must be equal to
rental rate of capital.
at this point, given the stated wage and
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