Applied Problems from Chapter 8 and 9
Marquita B. Mouton
BUS 640 Managerial Economics
December 6, 2010
Applied Problems from Chapters 8 and 9
The application of material is the true test of knowledge. With the help of the concepts and theories learned from Chapter 8 and 9, this paper will answer the second applied problem from Chapter 8 and the second and fourth applied problems from Chapter 9.
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?
The scenario presented describes a question managers must face every day. It is not wise hire another workers solely due to them causing diminishing returns. According to the Law of Diminishing Marginal Product, as long as the marginal product does not become negative, it would be wise that a manager hire beyond the initial diminishing number (Thomas and Maurice, 2011). For example, if 1200 units need to be produced and the 11th person hired causes the returns to diminish, then it would be advantageous to the manager to hire enough employees to satisfy the output without causing the marginal product to drop below zero.
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 total output, while the last press added 1,000 books to total output. Is the publishing house making the optimal input choice? Why or why not?
At the current input, Largo Publishing House is not making the optimal choice on input amounts. With the current inputs, they are underestimating the printers employed. Fifty printers could do the job of 1 printing press machine with a savings of $4,000.
2a. If not, how should the manager of Largo Publishing House adjust input usage?
References: Thomas, C. and Maurice, S., Managerial Economics: Foundations of Business Analysis and Strategy, Tenth Edition, Published by McGraw-Hill/Irwin, 2010.
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