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Dear Sir,
I copy below the answer for question 23 (Mar/Jun 2019)
If the shadow price is $125 per labour hour, it would mean that Cara Co would be willing to pay $125 of overtime premium per hour for the next 2,000 hours. The maximum hourly rate Cara Co would be willing to pay would be ($45 + $125) $170 for an additional 2,000 hours of temporary staff.”
I read the answer however I don’t understand how they have the figure 2,000 hours. Your help please.
Thanks,
DTFrom question 22, you know that only labour is limited. Seebach is the best product and that in month 2 they produce 2,000 units of Herdorf (because they have to) and use the rest of the available 12,000 labour hours producing 3,000 units of Seebach.
If they had more labour available they would produce more units of Seebach. However the maximum demand for Seebach is 4,000 units and so they would only be prepared to buy enough extra labour so as to be able to produce 4,000 units. Producing 4,000 units is 1,000 more than at present and would need 1,000 x 2 = 2,000 extra hours.
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