Question

In: Economics

A rapidly-growing fast-casual restaurant serving a regional market in the Ohio and Indiana markets was concerned...

A rapidly-growing fast-casual restaurant serving a regional market in the Ohio and Indiana markets was concerned about meeting demand for its burritos and burrito bowls during peak lunch hours. Therefore, the firm added a series of workers in a pilot test in their busiest shop in western Ohio. The shop added more and more workers trying to find their most efficient production point given additional workers. The following table depicts their production capabilities between their critical hours of 11:00 a.m. and 2:00 p.m. Note there have been no changes to the equipment or to the physical plant of the shop; only the number workers has changed.

Number of Part-Time Workers Added

Additional No. of Burritos During 3 Hours

1

20

2

36

3

46

4

50

5

48

6

40

7

28

Graph the performance of the workers using Excel; connect the points on the graph with a line or curve.

What principle of economics has the firm encountered in its pilot test of adding workers attempting to meet peak lunch demand?

Will this principle have any effect on the costs of the firm at some point? Please explain the relationship between costs and production changes displayed in the graph.

Solutions

Expert Solution

Marginal physical product is the change in the total physical product due to change in one unit of the variable input. The marginal product of labor is the change in total output due to one unit change in labor input. Let initial labor was L1and the output it produces is Q1; suppose the labor is increased by one unit to L2 and output is increased toQ2. Then the marginal product of labor is equal to

The performance of the labors is measured though the marginal product and it is also the determinant of demand for labor for the firm.

The figure below given the MP for the firm

The principle of economics that the firm experience is diminishing marginal product of labor or diminishing return to factor of production. The principle states that if the employment of a factor such as labor is increased by 1 unit, the resulting increase in output will be in a deacreasing rate. This will cause the MP curve to be negatively sloped.

The falling marginal product implies increasing avearge cost of the firm. This is because, as firm increase labor, beyond a limit , its total product began to fall due to diminishing returns. Thus cost per unit of output began to rise. This gives the average cost curve a U shape. It decreases initially because the addition to total product is higher than cost. Then it began to rise due to diminishing return.

Rahul Sunny answered 2 years ago
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