Optimal Input Level

question 16

Essay

Optimal Input Level. Sunshine Pest Control, Inc., provides exterminator services to residences in the Miami area. The primary resources SPC employs are skilled exterminators and large dome/air pumps used to cover the homes, pump in insecticide, and minimize leakage to the environment. Currently, SPC employs 10 exterminators at a cost of $15 per hour, employs 2,000 hours of pump time each week at a cost of $3 per hour. Each exterminator works a 40-hour week. This level of employment allows SPC to complete 100 treatments per week for which the firm receives $100 each.
A. Assuming that both returns to factors and returns to scale are constant, what are the marginal products for (1) exterminators and (2) gallons of chemicals?
B. Is SPC employing labor and domes in an optimal ratio, assuming that substitution of the resources is possible? Explain.
C. Determine the marginal revenue products for exterminators and for the domes/pumps employed by SPC. (Assume constant returns to factors in part A.)
D. Is SPC employing an optimal (profit-maximizing) quantity of labor and computer time? Explain.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Sole Proprietorship

A business owned and operated by a single individual, where there is no legal distinction between the owner and the business entity.

Dissolving

The process by which a substance breaks down into its constituent parts or is incorporated into a solvent, becoming a solution.

Partnership

A partnership is a legal form of business operation between two or more individuals who share management and profits.