Short-run - numerical
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?
