Question

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 possibly 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 CF&D.
b. Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers.

Answer 1

 

There are two major costs which any company has to bear so as to continue being productive and maximizing on its revenue requirements. Over the years, economists have realized these two costs to be fixed and variable. Fixed Costs are those wherein even at 0 level of production, the fixed cost remains the same. These include cost of machinery and equipment which the enterprise has bought and will be used in the production process.

Variable costs such as electricity used, cost of labour etc vary as per the companies needs and demand pattern. This is what the crux of the case study is and is described as follows: -

Answer to Part A)

As per the production theory, if you go on adding variable resource to the production line which in this case is the addition of labour to the manufacturing unit, then in that case after a certain time when the productivity of labour has been maximized, you will start getting negative returns from additional units of labour. This happens because the maximum number of people which can utilize the existing machinery is surpassed, making some of the people in this system redundant and unavailable for business.

Therefore, beyond a certain point, if you go on increasing the labour factor of production, the end result is that the overall productivity per person declines.

Answer to Part B)

The way to ensure that the productivity can be increased without the use of crackdown is to increase the fixed assets or technology which the labour force is currently using to produce the goods in the company. This would help in ensuring that the labour force utilizes the resources properly to be able to gain profits from the same.