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Unformatted text preview: Managerial Economics - SPSU Take-home Examination 2, spring 2008 HONOR CODE APPLIES-DO NOT TALK TO YOUR CLASSMATES SECTION I 1. For each of the following situations, determine whether the manager is concerned with a short run or long run production decision. Explain briefly in each case. a. A petroleum drilling supervisor on an offshore drilling platform decides to add an extra six-hour shift each day in order to keep the drill rig running 24 hours per day. The manager is concerned with a short run production decision in this case. The manager obviously deals with daily and day-to-day activity that lasts for a one day. The manager seems to be in charge of adding hours to the variable input which is the labor. In the short run the labor is expected to be variable, and there should be fixed inputs like capital. In this example, the manager does not change the equipment or plant which means that these facilities are fixed. The manager does not deal with strategy that touches long run results. If an extra six-hour shift is added each day, then the result will happen that day and that is all. The goal here is just related to one day activity, so the goal is achieved in a short time. b. The vice president of offshore petroleum drilling operations in the Gulf of Mexico chooses to deploy three more offshore drilling operations in the Gulf. The manager is concerned with a long run production decision. The manager has No restrictions and has the complete flexibility with respect to input use. The manager wants to deploy three more offshore drilling operations in the Gulf which means that the equipment is variable and there are no fixed inputs. The long run, there are no fixed inputs, and all the inputs are variable like capital and equipment. Expanding the output by deploying such operations will have an impact that takes long time, so the operation decision is in the long run. c. A manufacturing engineer plans the production schedule for the month. It is obvious from the statement above that the manager’s goal is in the short run. The manager deals with a plan that just covers a few weeks (one month) and the capital like plant and equipment are still fixed because there is no change on them. . In the short run the labor is expected to be variable, and there should be fixed inputs like capital. In this example, the manager is making plan that are performed by people and the current operation equipment. That means that the equipment is sill fixed and there is no additional rent, so the decision is related to the short run because the fixed costs incurred. d. After studying a demographic report on future increases in birth rates, a hospital administration decides to add a new pediatric wing to the hospital. The manager is concerned with a long run production decision. The manager has No restrictions, and she or he want to expand one of the production facility by adding a new pediatric wing to the hospital which is variable input and there are no fixed inputs. In new pediatric wing to the hospital which is variable input and there are no fixed inputs....
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This note was uploaded on 11/13/2011 for the course MIS 4100 taught by Professor Maxnorth during the Spring '11 term at Birmingham-Southern College.
- Spring '11