Managerial Economics and Quantitative Analysis
QUESTION #1
After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or ineffectively supervised (or possible both), the CEO instructed the shop foreman to "crack down" on the new workers to bring their productivity levels up.
a) Explain carefully in terms of production theory why it might be that no amount of "cracking down" can increase worker productivity at Canadian Fabrication & Design?
b) Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers.
QUESTION #2
Dimex Fabrication Company, a small manufacturer of sheet-metal body parts for a major U.S automaker, estimates its long-run production function to be:
Q = -0.015625K3L3 + 10K2L2
Where "Q" is the number of body parts produced daily, "K" is the number of sheet-metal presses in its manufacturing plant, and "L" is the number of labor-hours per day of sheet-metal workers employed by Dimex. Dimex is currently operating with eight sheet-metal presses.
a) What is the total product function for Dimex? The average product function? The marginal product function?
b) Managers at Dimex can expect the marginal product of additional workers to fall beyond what level of labor employment?
c) Dimex plans to employ 50 workers. Calculate the total product, average product and marginal product.
QUESTION #3
Suppose your company produces one product and that you are currently at an output level where your price elasticity is 0.5. Are you at the optimal output level for profit maximization? How can you tell?