ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Chapter 5, Problem 34P
To determine
To find:Whether automated system or the existing labor-intensive system should be preferred to line G.
Expert Solution & Answer
Answer to Problem 34P
Present worth for labor intensive is less -$432,912than the present worth of automated system which is
Explanation of Solution
Given information:
| LaborintensiveSystem | AutomatedSystem | |
| Initial cost | $0 | $110,000 |
| Installation cost | $0 | $18,500 |
| Firs year O&M cost | $2000 | $4800 |
| Annual increase | $450 | $950 |
| First year labor cost | $72,000 | $47,500 |
| Annual increase | 5% | 5% |
| Salvage value (EOY 15) | 2500 | 20,000 |
Interest rate is
No. of years are
Formula used:
Spreadsheet Function to calculate net present worth
NPV −
CF1:CF2 − Cash flow data range without the initial cost
Calculation:
By using the above-mentioned formula, labor intensive system &automated system’spresent Worth is calculated.
Present worth of labor-intensive system
Present worth of automated system
Present worth for labor intensive is
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2.) Using the line drawing
tool,
plot and label the isocost line.
Carefully follow the instructions above, and only draw the required objects.
FILL IN BLANK
d. Now suppose the price of labour rises to $5 per unit, but the firm still wants to produce 500 tires per day. Explain how a cost-minimizing firm adjusts to this change (with no change in technology).
A cost-minimizing firm will be producing on
▼
The samedifferently slopedparallel
isocost line. The firm will use
▼
moresameless
labour and
▼
less
the same amount of
more
capital and produce on
▼
a higher point on the same
a lower point on the same
a lower
a higher
isoquant curve.
QK
Using the graph on the right, determine how the firm
should change the quantity of the production factors in
order to reduce the costs.
The firm that is producing at point A can reduce its costs
for producing 2000 units by employing
A. same capital and more labour.
B. less capital and more labour.
○ C. less capital and the same labour.
D. more capital and more labour.
OE. more capital and less labour.
C
A
B
Q =4000
Q = 2000
C
Isocost line
QL
PL
Suppose the price ratio
is the same along isocost
PK
lines A and B. In the figure at right, the difference between
isocost line A and isocost line B is that
A. the total cost is larger along B.
B. the total cost is larger along A.
OC. labour is relatively more expensive along A.
○ D. the level of output is lower along A.
OE. both capital and labour are relatively cheaper
along A.
Capital
B
Labour
Chapter 5 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 5 - Prob. 1QTCCh. 5 - Prob. 2QTCCh. 5 - Prob. 3QTCCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7P
Ch. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Prob. 43PCh. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 60PCh. 5 - Prob. 61PCh. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Prob. 64PCh. 5 - Prob. 65PCh. 5 - Prob. 66PCh. 5 - Prob. 67PCh. 5 - Prob. 68PCh. 5 - Prob. 69PCh. 5 - Prob. 70PCh. 5 - Prob. 71PCh. 5 - Prob. 72PCh. 5 - Prob. 73PCh. 5 - Prob. 74PCh. 5 - Prob. 75PCh. 5 - Prob. 76PCh. 5 - Prob. 77PCh. 5 - Prob. 78PCh. 5 - Prob. 79PCh. 5 - Prob. 80PCh. 5 - Prob. 81PCh. 5 - Prob. 82PCh. 5 - Prob. 83PCh. 5 - Prob. 84PCh. 5 - Prob. 85PCh. 5 - Prob. 86PCh. 5 - Prob. 87PCh. 5 - Prob. 88PCh. 5 - Prob. 89PCh. 5 - Prob. 90PCh. 5 - Prob. 91PCh. 5 - Prob. 92PCh. 5 - Prob. 93PCh. 5 - Prob. 94PCh. 5 - Prob. 95PCh. 5 - Prob. 96PCh. 5 - Prob. 97PCh. 5 - Prob. 98PCh. 5 - Prob. 99PCh. 5 - Prob. 100PCh. 5 - Prob. 101P
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