... Explain how a firm can experience diminishing returns in the short-run and economies of scale in the long run. (15 marks) Economies of scale is a long-run concept experienced by firms whereby lower average costs is achieved as a result of an increase in the scale of production. It can occur both internally and externally. Examples of internal economies of scale include: technical, marketing, managerial, financial, network and specialisation of the workforce. The law of diminishing return states that as additional units of a variable factor (such as labour) are added to a fixed factor(such as premises), the extra unit of output from the variable factor will eventually diminish (this is a short-run concept). <Insert cost curve envelope> The above diagram illustrates a cost curve envelope. As a new firm starts to produce a good or service in an industry, they under produce at point Qa. The firm then starts to utilise their resources and eventually reach optimum efficiency as shown in the diagram above at point Qb. If a firm starts to overproduce and over utilise their resources due to massive order by a large firm required within a short time period, they will produce at point Qc at cost AC. At this point, each extra marginal unit of labour added to the fixed cost will produce fewer marginal units of labour and therefore the firm experiences the law of diminishing returns as total output is still increasing but at a diminishing rate. In the long run a firm can...
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...Project II- Point of Diminishing Returns Name: ____________________________ Due: Monday, June 24, 2013 Please read each question carefully and be sure to answer all parts. Show all of your work. ____________________________________________________________________________ The total amount of revenue made by the Miramar Resort Hotel is given by the function , , where x is the amount of money the hotel spends on advertising its services, and where both revenue and x are measured in thousands. 1. Using Wolfram Alpha, graph the revenue function over the given domain and paste the graph here. 2. Compute the marginal revenue function R'x and copy and paste a graph of this function on the domain here. Then use Wolfram Alpha to determine where revenue is increasing and where revenue is decreasing. Write your answers using interval notation. (0, 150) Revenue is increasing (150,300) Revenue is decreasing. 3. How much money (in dollars) should the hotel spend on advertising to maximize its revenue? What is the maximum revenue in dollars? The hotel should spend $250,000 to reach their maximum revenue. 4. Compute the second derivative of R(x). Copy and paste the graph of the second derivative here. On which intervals is the function concave up? Explain what is happening to revenue on this interval. According to the graph the function is not a concave up but is concave down at all points. After 150 the revenue is turning into a loss. This means...
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...QCT 3 --6.7 points each for a total of 80 points Salvatore’s Chapter 6: a. Discussion Questions: 1,7, and 15 1: (a) What is forecasting? Why is it so important in the management of business firms and other enterprises? (b) What are the different types of forecasting? (c) How can the firm determine the most suitable forecasting method to use? a) Forecasting is used to try and predict the economic activity of a firm’s future. It aims to reduce risk/uncertainty that is faced in the short-term operational decision making. It is also used to plan for the firm’s long-term growth. Forecasting helps make decisions by using macroforecasts of the general economic activity as inputs for their microforecasts of the industry’s and firm’s demand and sales. Forecasting helps decide a firm’s marketing strategy, production needs, sales forecast, and helps predict financial needs such as cash flow, profits, and outside financing. Furthermore, it helps make personal based decisions, as well as assist for the long-term future of the firm (Salvatore, 2012). b) Forcasting types range from expensive to inexpensive, as well as simple to complex. Forecasting techniques can be qualitative, and others can be quantitative. Salvatore focuses on qualitative forecasts. These forecasts include: time-series, smoothing techniques (moving averages), barometric forecasts with leading indicators, econometric forecasts, and input-output forecasts. c) A firm...
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...between 250 (7500) and 300 (9000) claims daily. Therefore, Amerigroup’s marginal product shows there is an increase or extra output added by hiring 12 additional employees to increase production. Unfortunately, the more employees added to the production cycle declines the per unit output of employees. What this entails is that every employee process nearly 250 claims daily and adding 12 more people increases productivity to average between 10,500 and 12,600 claims every day. Although the numbers look good there is a problem that may arise; the company may find themselves with limited equipment or other resources may become bottlenecked, and not to mention physical limitations if an employee becomes ill. This problem is called, diminishing marginal return resulting in employee work production to decline. In other words, marginal product will be positive, but declining, as the input increases McConnell, Brue, & Flynn, 2015). Therefore, as a manager one practical method to raise marginal product per employee and that will help Amerigroup begins with offering on-the-job education and training; doing so will increase not only employee productivity and income but improve profits for the company. The company may also rely on motivation tools such as rewards instead of hiring new employees. Employees who are motivated and who receives rewards normally produce at a productive rate. If productivity falls and products are not up to par the company loses money, have unsatisfied customers...
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...UNIVERSITY OF LAGOS (DISTANCE LEARNING INSTITUTE) DEPARTMENT - PUBLIC ADMINISTRATION COURSE: MICROECONOMICS NAME: UDOKANG JANE ENOBONG MATRICULATION NO: 121009632 LEVEL 200 TITLE OF ASSIGNMENT "EXPLAIN IN YOUR OWN WORDS WHAT YOU UNDERSTAND BY THE LAW OF DIMINISHING MARGINAL RETURNS” DEFINITION The Law of Diminishing Marginal Returns states that in a production process, as one input variable is increased there will be a point at which the marginal per unit output will start to decrease. In other words, keeping all other factors constant, the additional output gained by another one unit increase of the input variable will eventually be smaller than the additional output gained by the previous increase in input variable. At that point, the diminishing marginal returns take effect. The examples below will provide some clarity to the Law of Diminishing Returns. Let us consider a corn farmer with one acre of land. In addition to the land, other factors including quantity of seeds, fertilizer, water, and labor. I assume the farmer has already decided how much seed, water, and labor he will be using this season. He is still deciding on how much fertilizer to use. As he increases the amount of fertilizer, the output of corn will increase. It may also reach a point where the output actually begins to decrease since too much fertilizer can become poisonous. The table below shows the output of corn per unit of fertilizer: ...
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...| | |Second Semester MBA | |Term Paper | |HUMAN RESOURCE DEVELOPMENT | | | |[pic] | | | | | |"PERFORMANCE APPRAISAL TECHNIQUES | |FOLLOWED IN ROBERT BOSCH" | | ...
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...CHAPTER 5 ** Returns to scale – we are looking at what happens to our output if all our inputs are increased by what percentage. All inputs change by the same input. Ex: we increased by 10% as well as aluminum 10% cars by 20% - increased by same percentage and payoff was increased. Decreasing returns of scale – usually from coordination and control. Too large when we increase amount of workers etc. IF we could have kept production at a smaller scale. Increase – common reason increased by specialization able to divide up. Returns of a factor *What happens if we change more than one – all others held constant. Ex: We change steel and hold aluminum constant. Total output – how many are we producing Average – Marginal – (additional product) or incremental I = input not income Most production functions will reach a level that an additional product (marginal) starts to decline. = law of diminishing return. As more of a variable input (something can changed as apposed to something fixed) at some point additional (marginal returns) start to fall. = INCREASE at DECREASING RATE. The payoff starts to get less and less. LAW OF DIMINISHING RETURNS | | * increasing at an increasing rate / increasing at a decreasing rate/ decreasing. | * |*___________ second graph Marginal product – was going up first worker gave me 4 units/ second gave me 6/ increasing at a decreasing rate 0 1 2 ...
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...Y is the change in quantity of output produced (resulting from the change in the input). Note that the quantity Y of the "product" is typically defined ignoring external costs and benefits. If the output and the input are infinitely divisible, so the marginal "units" are infinitesimal, the marginal product is the mathematical derivative of the production function with respect to that input. Suppose a firm's output Y is given by the production function Y=F(K,L) where K and L are inputs to production (say, capital and labor). Then the marginal product of capital (MPK) and marginal product of labor (MPL) are given by: MPK=\frac{\partial F}{\partial K} MPL=\frac{\partial F}{\partial L} In the "law" of diminishing marginal returns, the marginal product initially increases when more of an input (say labor) is employed, keeping the other input (say capital) constant. Here, labor is the variable input and capital is the fixed input (in a hypothetical two-inputs model). As more and more of variable input (labor) is employed, marginal product starts to fall. Finally, after a certain point, the marginal product becomes negative, implying that the additional...
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...ASSIGNMENT # 1: PRODUCTION AND COST ANALYSIS IN THE SHORT-RUN by Mandar Adkar May 8, 2011 ECO 550: Managerial Economics and Globalization Prof. Fereidon Shahrokh, Ph.D. ASSIGNMENT # 1: PRODUCTION AND COST ANALYSIS IN THE SHORT-RUN Introduction This document analyzes production data for a fictitious company to explain the stages of production with the help of table and figures. The document also provides identifies the three stages of production and explains why the firm's short run production has only one rational stage. The table below provides the data required for creating graphs related to productivity measures of Total Product (TP), Average Product (AP) and Marginal Product (MP) that constitute the Short run analysis of the Production process. Table 1 Table showing the Average and Marginal product of labor for a hypothetical firm |Amount of labor( units) |Amount of capital(No. of |Output of parts(Q, hundreds |Average product (Q/L) |Marginal product(∆Q/ | | |machines) |of parts) | |∆L) | |0 |5 |0 |- |- | |1 |5 |49 |49 |49 | |2 ...
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...BUSI 620 QCT 3 --6.7 points each for a total of 80 points Salvatore’s chapter 6: a. Discussion Questions: 1,7, and 15 1. Forecasting for most businesses means gathering historical information and building an estimate or prediction of future events based on the analytical actions of the past. It is important to businesses and other enterprises because it becomes a statistical map for where the organization could go and helps to identify where areas of weakness may be in order to create a new or different pathway to increase performance. There are several types of forecast, qualitative, time series analysis, causal relationship, simulation, and barometric methods. Firms must examine what form of business analytics they need to solve their problems whether it is time data, research data, or trend analysis. 7. Exponential smoothing is the best technique in forecasting as it examines all averages and examines the average of the actual and forecasted values. We have to look at what is required average to determine which smoothing technique is better that will be based on the need of the forecast for the business. Regression Approach would probably be the best to forecast the values of a time series that contains a secular trend as well as a strong seasonal and random variations. 15. It is still useful to pursue forecasting due to the fact that it can provide a directional for time trends or trend analysis that businesses need to learn where...
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...In a short-run production function, total product, average product, and marginal product changes as total product and labor increases. The total product increases rapidly up to 6.666 units of labor. This means that marginal product is increasing over the range of production when one additional unit of labor is added. While total product is increasing between 6.666 units of labor and 14 units of labor marginal product is decreasing. When a total of 14 labor units are used, total product has then reached its maximum at 1596. If 15 labor units are used, total product will begin to decrease. The marginal product of labor is 23 as labor is increased from 13 to 14 and the marginal product of labor is -21 as labor is increased from 14 to 15. The average product increases rapidly when up to 10 units of labor is employed. This means that average product is increasing over the range of production when one additional unit of labor is added. While total product is increasing between 10 and 14 units average product is also decreasing. Average product reaches its maximum when 10 units of labor are used. Marginal product is greater than the average product between labor units 1 and 10. Once the average product reaches its maximum (at unit 10) the marginal product will equal the average product. Once the average product and marginal product equal, the marginal product becomes less than the average product when more units of labor are employed. During the first stage of production, the marginal...
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...Ch6 DQ.2(a). What are qualitative forecasts? What are the most important forms of qualitative forecasts? Qualitative forecasts are used as supplements for quantitative forecasts when the future conditions of consumer tastes or business expectation changes are anticipated and when quantitative forecast data is not available. Qualitative forecasts are invaluable when forecasting demand for a product that the firm intends to introduce in the market. The most important forms of qualitative forecasts are survey techniques and opinions polls. Both these qualitative forecasts techniques helps to plan on the demand of aproducts for consumers and help plan on expenditure for expansion of the firm. Ch6 DQ.2(b). What is the rationale and usefulness? The survey techniques helps to determine the future of a product or service based on the information provided by the consumers in the survey and the economic activities of the business can be planned based on the results from survey for the companies expenditure on its expansion or other production plans. In case of opinion polling, it helps to determine potential buyers and their requirements and this can help firms to forecast its product demands and improvement of options that will have to be added for customers to buy the goods. Ch6 DQ.3(a). What are time-series data? What are the possible sources of variation in time-series data? Time-series data is the values of a variable arranged chronologically by days, weeks, months, quarters...
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...besa44438_ch06.qxd 09/23/2004 04:18 PM Page 183 6 C H A P T E R INPUTS AND PRODUCTION FUNCTIONS 6.1 INTRODUCTION TO INPUTS AND PRODUCTION FUNCTIONS APPLICATION 6.1 Competition Breeds Efficiency 6.2 PRODUCTION FUNCTIONS WITH A SINGLE INPUT 6.3 PRODUCTION FUNCTIONS WITH MORE THAN ONE INPUT High-Tech Workers versus Low-Tech Workers APPLICATION 6.2 6.4 S U B S T I T U TA B I L I T Y A M O N G INPUTS Elasticities of Substitution in German Industries APPLICATION 6.3 APPLICATION 6.4 Measuring Productivity APPLICATION 6.5 Returns to Scale in Electric Power 6.5 RETURNS TO SCALE Generation APPLICATION 6.6 Returns to Scale in Oil Pipelines APPLICATION 6.7 Technological Progress in the U.K. 6.6 TECHNOLOGICAL PROGRESS Appendix THE ELASTICITY OF SUBSTITUTION FOR A COBB–DOUGLAS PRODUCTION FUNCTION besa44438_ch06.qxd 09/23/2004 04:19 PM Page 184 Can They Make It Better and Cheaper? The production of semiconductor chips—thin, glasslike wafers that are used to store information in digital equipment—is costly, complex, and delicate.1 Production involves hundreds of steps and takes place in facilities called fabs, expensive factories that can cost more than $1 billion to construct. To avoid contaminating chips, fabs must be 1000 times cleaner than a hospital operating room. Because the manufacturing process is so expensive and because a typical fab is obsolete in 3 to 5 years (and...
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...After reading this chapter, you are expected to be able to: 1. make the students understand the reasons for the existence of firms 2. analyse the production theory with two variable inputs 3. demonstrate the least cost factor combination While going through this analysis students may feel it is a revision of the indifference curve and the budget line. Isocost and isoquants play the same role in producer’s equilibrium as that played by the budget line and indifference curves in consumer’s equilibrium. Isocost curve is a producer’s budget line while isoquant is his indifference curve. Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time. The significance of factors of productive resources is that, any two factors are substitutable e.g. labour is substitutable for capital and vice versa. No two factors are perfect substitutes. This indicates that one factor can be used a little more and other factor a little less, without changing the level of output. It is a graphical representation of various combinations of inputs say Labour(L) and capital (K) which give an equal level of output per unit of time. Output produced by different combinations of L and K is say, Q, then Q=f (L, K). Just as we demonstrate the MRSxy in respect of indifference curves through hypothetical data, we demonstrate the...
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...LEARNING ASSIGNMENT 1 UNIT 3 QUESTIONS 1. Explain the law of diminishing marginal returns? 2. Explain the following terms: a. Isoquant b. Marginal rate of technical substitution c. Isocost and what is the composition of this equation. 3. How do we determine the optimum level of for two inputs in the long run? 4. How do we determine the optimal level of a single input in the short run? Graph 1 K E D F C Q3 B Q2 A Q1 LABOR Above graph represents isoquants and isocost curves. On the vertical axis we find capital and on the horizontal axis labor. 1. Which points in Graph 1 represent technical efficiency? What condition is true at these particular points? 2. If output elasticity is less than 1, what information does it provide to the manager? Exercise 1 In Graph 2 we see the long run as well as short run expansion path for Maurice & Thomas Corporation. The price of capital (K) is $60 per unit and the price of labor...
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