Optimal Input Level

question 36

Essay

Optimal Input Level. Communications Consultant Services, Inc., advises small to medium-sized businesses on telephone equipment and network configurations. The primary resources CCS employs are skilled network consultants and computers. Currently, CCS employs 16 consultants at a cost of $70 per hour (wage plus fringes and variable overhead), and purchases 160 hours of computer time each week at a time-sharing cost of $280 per hour. Each consultant works a 40-hour week. This level of employment allows CCS to complete 213 communications analyses per week for which the firm receives $300 each.
A. Assuming that both returns to factors and returns to scale are constant, what are the marginal products for: (1) communication consultants and, (2) computer time (up to the full capacity level)?
B. Is CCS employing labor and computers in an optimal ratio, assuming that substitution of the resources is possible? Explain.
C. Determine the marginal revenue products for consultants and for the computer services employed by CCS. (Assume constant returns to factors in part A.)
D. Is CCS employing an optimal (profit-maximizing) quantity of labor and computer time? Explain.

---

Definitions:

Reducing Cost

Measures taken to decrease the costs associated with the production or delivery of goods and services.

Modernization

The process of adopting the latest technology, organizational practices, or societal norms, aiming at improving efficiency and effectiveness.

Declining Death Rates

A decrease in the number of deaths over a particular period of time, often leading to population growth.

Efficient Use

The optimization of resource utilization to achieve the maximum possible output or benefit with the least waste or expense.