Optimal Input Level

question 43

Essay

Optimal Input Level. Just Bikes, Inc., sells tricycles, in partially-assembled and fully assembled forms. Parents who assemble their own tricycles benefit from the lower price of $40 per tricycle. "Full-service" customers enjoy the luxury of an assembled tricycle, but pay a higher price of $60 per tricycle. Both partially and fully assembled tricycle prices are stable. The company has observed the following relation between the number of assembly workers employed per day and assembled tricycle output:

A. Construct a table showing the net marginal revenue product derived from assembly worker employment.
B. How many assemblers would Just Bikes employ at a daily wage rate of $100?
C. What is the highest daily wage rate Just Bikes would pay to hire three assemblers per day?

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Definitions:

Average Cost Method

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the average cost of all similar items in inventory.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Units

The basic quantities or measures used to quantify and track inventory, production, and sales.

Periodic Inventory System

A method of inventory valuation for financial reporting purposes where a physical count of the inventory is performed at specific intervals and the cost of goods sold is calculated at the end.