Question

short answers:

A. In the short run, how does a business manager make wise use of the relationship between the marginal product, the average product, and the total product to help determine the point at which maximum output efficiency is achieved?

B. Analyze each action below one at a time and explain if it is a short run action or a long run action, and explain why.

1. A firm builds a lunch room extension to its office building.

2. An ice cream parlor installs a second refrigerator.

3. A utility runs its generators 4 more hours per week.

4. A firm hires 5 more workers.

5. An airport builds a new traffic control tower in 2 months.

Answer 1

A) In short run, one factor of the production is fixed and another factor of the production is variables. The short run it is profitable to firm to employees additional unit till marginal products variable products become zero where the total product is highest if firm employees beyond additional variable units the contribution from the additional variable units become zero due to following reasons.

• The Economic Resources are scarce
• The supply of fixed factors is fixed
• The factors of production not divisible
• The overutilization of the fixed factor in connection with variable factors

B)

1) Long Run Action it is only in long run firm can make changes in investment and size

2)Long Run action it is only in long run firm can expand plant size.

3) Short Run actions increase the output existing units of production

4) Short Run action increase the production employing more variable factors

5) Lon Run Action only in long run firm can expand the size of the plant, investment.