Final wk questions - Applied Problems 4 Complete the...

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Applied Problems 4 Complete the following problems from your text: Chapter 8: Applied Problem 2 2) At a management luncheon, two managers were overheard arguing about the following statement, "A manager should never hire another worker fi the new person causes diminishing returns." Is this statement correct? If so, why? If not, explain, why not. Answer: 1a) At a management luncheon, two managers were overheard arguing about the following statement, "a manager should never hire another worker if the new person causes diminishing returns". Is this statement Correct? If so why? If not explain why not? In detail. The statement is not correct. It is also profitable if the returns is diminishing, but still higher than the worker's wage. Because if the marginal product revenue (Price*Marginal Product) is higher than marginal cost, (wage of hiring another worker) the manager can still earn profit by hiring that worker. But if the MPR is diminishing, and MC increasing, the maximal profit is achieved at the employment level where MPR=MC. Then the marginal profit of hiring one more worker is zero, which is the optimal level. Obviously, the returns might be diminishing before it reaches that level. 2a)Statement is correct. However I would add the following. A firm should hire until the value of the marginal product (aka marginal revenue product or MRP) equals the marginal cost of the input (aka the marginal factor cost or MFC). The MRP will decline because of diminishing returns. However, as long as MRP > MFC, the firm should keep hiring, even if diminishing returns are occuring Chapter 9: Applied Problems 2 and 4 Show work and explain your analysis. Submit your answers to the instructor. 2) The largo publishing house uses 400 printers and 200 printing presses to produce books. A printer’s wage rate is $20, and the price of the printing press is $5,000. The last printer added 20 books to the total output, while the last press added 1,000 books to the output. Is the publishing house making the optimal input choice? If not how should the manager adjust input usage? Answer: 2A1) That is, 20/20 ≠ 1000/5000 1 ≠ 0.2
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So, the publishing house is not making the optimal input choice. The manager can adjust the input usage by reducing the number of printing press. By reducing the number of printing press, the marginal productivity of the printing press will increase and thereby the ratio can be equated. For example, the number of printing press has to be reduced until the marginal productivity increases to 5000 and the ratio will equate each other. Otherwise they can increase the number of printers also in order to get the optimal solution. Thus the largo publishing house should uses less than 200 printing presses or can use more than 400 printers. , how should the manager of Largo Publishing House adjust input usage?
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Final wk questions - Applied Problems 4 Complete the...

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