Suppose That a Constraint for Assembly Time Has a Shadow

question 31

Essay

Suppose that a constraint for assembly time has a shadow price of $50/hour for 15 hours in either direction and that all available assembly time is currently used (would require overtime to do more). If the salary of workers is $30 and they receive 50% extra pay for overtime what should management do?

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Definitions:

Normal Profit

The minimum level of profit necessary for a company to remain competitive in the market, covering opportunity costs but not generating economic profit.

Market Equilibrium

The state in which market supply and demand balance each other, and, as a result, prices become stable.

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, reflecting the true profitability of the firm.

Economic Profit

The gap between the total income a company makes and all of its expenses, covering both direct and indirect costs.