Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use of spot radio advertising on WHAM AM, with each 30-second ad costing $100. During the past year, the following relation between advertising and ticket sales per event has been observed.
Sales = 5,000 + 100A - 0.5A2
where, A represents a 30-second radio spot ad, and sales are measured in numbers of tickets.
You also know Sales (units)/ Advertising = 100 A, and that each ticket sells for $2.
A. If the relationship between advertising and ticket sales can be interpreted as a production function, with advertising as input and sales as the output, then calculate the number of radio ads that should be used for maximizing profits from ticket sales. Show your calculations.
B. Does this production function of ticket sales exhibit increasing or diminishing returns to advertising? Explain.
2. You are a manager at Glass Inc. a mirror and window supplier. Recently, you conducted a study of the production process for your single-sided encapsulated window. The results from the study are summarized below and are based on the fixed 8 units of capital currently employed at your plant. Workers are paid $60 per unit and your encapsulated windows sell for $12 each.
Labor
Output
0
0
1
10
2
30
3
60
4
80
5
90
6
95
7
95
What is the optimal amount of workers that you should employ to maximize profits in the short run? Show your calculations in form of a detailed table which you used to arrive at your answer.
Note: If you want you can do the calculations in Excel and submit the Excel file (printed or electronically through Dropbox) for the calculations part of your answer.
3. Boeing Commercial Airline Group (BCAG), a U.S. company, combines efforts of capital and more than 90,000 workers to produce commercial airplanes. Suppose the European company, Airbus, enjoys a similar production technology and produces similar airplanes, but labor costs are higher in Europe than in the United States.
A. Following the rule of optimal input usage, should Airbus employ a more labor-intensive or capital-intensive production process compared to Boeing? Explain in detail.
B. Given your answer above, would you expect workers at Airbus to have the same, higher, or lower marginal product compared to workers in Boeing? Explain carefully.
Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use of spot radio advertising on WHAM AM, with each 30-second ad costing $100. During the past year, the following relation between advertising and ticket sales per event has been observed.
Sales = 5,000 + 100A - 0.5A2
where, A represents a 30-second radio spot ad, and sales are measured in numbers of tickets.
You also know Sales (units)/ Advertising = 100 A, and that each ticket sells for $2.
A. If the relationship between advertising and ticket sales can be interpreted as a production function, with advertising as input and sales as the output, then calculate the number of radio ads that should be used for maximizing profits from ticket sales. Show your calculations.
B. Does this production function of ticket sales exhibit increasing or diminishing returns to advertising? Explain.
2. You are a manager at Glass Inc. a mirror and window supplier. Recently, you conducted a study of the production process for your single-sided encapsulated window. The results from the study are summarized below and are based on the fixed 8 units of capital currently employed at your plant. Workers are paid $60 per unit and your encapsulated windows sell for $12 each.
|
Labor |
Output |
|
0 |
0 |
|
1 |
10 |
|
2 |
30 |
|
3 |
60 |
|
4 |
80 |
|
5 |
90 |
|
6 |
95 |
|
7 |
95 |
What is the optimal amount of workers that you should employ to maximize profits in the short run? Show your calculations in form of a detailed table which you used to arrive at your answer.
Note: If you want you can do the calculations in Excel and submit the Excel file (printed or electronically through Dropbox) for the calculations part of your answer.
3. Boeing Commercial Airline Group (BCAG), a U.S. company, combines efforts of capital and more than 90,000 workers to produce commercial airplanes. Suppose the European company, Airbus, enjoys a similar production technology and produces similar airplanes, but labor costs are higher in Europe than in the United States.
A. Following the rule of optimal input usage, should Airbus employ a more labor-intensive or capital-intensive production process compared to Boeing? Explain in detail.
B. Given your answer above, would you expect workers at Airbus to have the same, higher, or lower marginal product compared to workers in Boeing? Explain carefully.
