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Question: Optimal Input Level. Smokey's Garage, Inc., provides routine auto diagnostics for customers in the Atlanta, Georgia, metropolitan area. Tests are supervised by skilled mechanics using equipment produced by two leading competitors in the auto test equipment industry. Records for the current year show an average of 4 tests per hour performed on the Sunny Tune System (STS), and 6 tests per hour on a new machine, the Car Care Tower (CCT). The STS is leased for $8,000 per month, and the CCT is leased at a rate of $12,000 per month. On average, each machine is operated 25 eight-hour days per month. Labor and all other costs are fixed.

A. Does company usage reflect an optimal mix of testing equipment? (hint: The rule for an optimal combination of STS and CCT equipment is:

B. At a price of $15 per test should the company lease more machines? (hint: The rule for optimal input employment is MRP = Input Price) Please solve using excel functions.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92586189

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