Your firm prints the novelty baseball cards that candy maker

Your firm prints the novelty baseball cards that candy makers include in their bubble gum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour work week. Now a few of the candy makers are increasing their orders so that you will need to produce 150,000 cards per week, at least temporarily. If you produce these cards by adding a swing shift from 4 pm to midnight, you will have to pay workers time and a half. What does this imply for the shape of your short-run marginal cost curve? What does it imply for your pricing?

Solution

Answer: As the rise in production may be temporary, thus may not pay to invest in additional production lines. With an additional another shift, the labor will become more costly. The short run costs increase or decrease is based on variable cost and the rate of production, thus when labor cost increases, the short-run marginal costs also increases. It implies that the product prices must be increased to ensure to maintain the margin of price-cost.