Q. Mor Tex Company assembles garments entirely by hand even though a textile machine exists that can assemble garments faster than a human can. Workers cost $50 per day and each additional labourer can produce 200 more units per day (i.e., marginal product is constant and equal to 200). Installation of first textile machine on assembly line will increase output by 1,800 units daily. Currently firm assembles 5,400 units per day.

a. financial analysis department at MorTex estimates that price of a textile machine is $600 per day. Can management reduce cost of assembling 5,400 units per day by purchasing a textile machine and using less labour? Why or why not?

b. Textile Workers of America is planning to strike for higher wages. Management predicts that if strike is successful, cost of labour will increase $100 per day. If strike is successful, how would this affect decision in part a to purchase a textile machine? Explain.