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Short-run - numerical

question

Question 1

A firm uses two variable factors of production in the manufacture of its product, labour and capital. It combines these with a fixed factor, land, to produce different quantities of output.

a) Is this firm operating in the short or long run?

The following data is available

Units of labour 1 2 3 4 5 6 7
Output 10 25 30 25 20 15 10


b) When does the law of diminishing returns click in?

Question 2

A firm is planning to expand production by 300 units per hour. To do this it will have to either employ more labour, or bring in more special equipment. It has the following data available. Using this data only, advise the firm what it should do.

Cost of labour - 30 per hour
Productivity - 60 units per hour

Cost of equipment (hire charge) - 100 per hour
Productivity - 350 units per hour.

Question 3

You have asked the question, and the firm has supplied you with the following information:

Number of extra workers 1 2 3 4 5 6 7
Expected total output 60 150 300 420 500 480 420


If more than 5 workers are employed, cost per worker will have to rise to 35 per worker. How does this information influence your case?

Question 4

The following information has been provided by the firm.

Anticipated cumulative increase in production requirements for next 6 periods

Period 1 2 3 4 5 6
Extra sales expected 300 400 550 700 1000 2000


How does this affect your advice?