Question

5. Quick Shop Printing has two workstations, cutting and pasting. The cutting station is limited by the speed of operating the cutting machine. Pasting is limited by the speed of the workers. Pasting is working at maximum capacity and as a result Quick Shop is turning away extra business. They have several options to consider. Select the appropriate one.

a. Improve the efficiency of the cutting station.

b. Hire a contractor to help with the pasting workstation.

c. Reduce the selling prices of Quick Shop’s products.

d. Do nothing since the process and costs are fixed in the short run

Answer 1

Here it is apparent from the question that there are two limiting factors in production, that are cutting machine and pasting. But the fact that is note worthy is that pasting is working at its maximum capacity i.e., no further increase in production can be done until there is increase in this factors capacity. So, first focus should be on pasting, then we need to focus on cutting machine. Acccordingly, we will consider above options one by one:

a. Improve the efficiency of cutting station : This option is not appropriate. As we have discussed above that first our focus should be on increasing the pasting capacity, then cutting machine efficiency needs to be improved. If we exercise this option there would be no increase in production. So, this option should be rejected.

b. Hire a contractor to help with the pasting work station : This option is appropriate. This is due to the fact that pasting was already working at full capacity. So, if we increase work capacity here then it is possible to increase overall production. It is mentioned in the question that cutting station is limited by speed, but it is not mentioned that it is working on full capacity. So, exercising this option is appropriate and it will increase the production capacity.

c. Reduce the selling prices of quick shop's products : This option is not appropriate. Reason behind this is that reducing prices will increase demand for products, but it will not impact supply. Supply would remain same, but demand will increase. The result will be overall fall in profit due to reduced prices as quantity supplied remains same. So, this option should not be accepted.

d. Do nothing since the process and costs are fixed in the short run : This option is not appropriate. Doing nothing will lead to no impact. It is worthwhile to note here that in short run also process can be altered upto some extent. Hence if we want we can bring changes in cutting and pasting capacity to some extent. This will lead to overall production improvement. So, this option should not be accepted.

Hence option B i.e., hire a contractor to help with the pasting work station is most appropriate. It will lead to increase in overall production.