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Managerial Economics – 1 Question

Tesla, the electric car maker, has expressed an intention to carry out production in Fremont in a way that makes intensive use of industrial robots.  It must balance this intention with the judgement and adaptability offered by human workers and the additional productivity made possible by installing conventional equipment for the production of automobiles.

  Currently, 50 robots are being leased from a Japanese provider at a cost of $100,000 per robot per year.  The marginal product of a robot corresponds to 500 additional cars per year.  Each piece of conventional equipment is being leased from a German provider at a cost of $20,000 per year.  Its marginal product is 125 additional cars per year. The going rate of pay for the human workers is $80,000 per year.  One hundred workers are employed.  The marginal product of a worker amounts to 450 additional cars per year.

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  Other things equal, the marginal product of an input falls as more of it is employed.

  It is expected that 10 workers will quit or retire by the end of the year.  Tesla plans NOT to replace them.  Instead, Tesla has in mind the use of 10 additional robots next year.

  Comment on the efficiency of Tesla’s use of robots.  Comment also on Tesla’s use of humans vs. its use of conventional equipment.  Should Tesla become more labor-intensive?  More equipment-intensive?  Fully explain your answers.

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