Sub: Economics

Topic: Micro Economics

Question: Using prodcution theory to explain the chnages in prodcutivity deu to expansion
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After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or inefficiently supervised (or possibly both), the CEO instructed the shop foreman to "crack down" on the new workers to bring their productivity levels up. a. Explain carefully in terms of production theory why it might be that no amount of "cracking down" can increase worker productivity at CF&D. b. Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers. Fully explain your alternative in terms of production theory.

Solution:
a. Explain carefully in terms of production theory why it might be that no amount of "cracking down" can increase worker productivity at CF&D. So far as the production theory is concerned, it is true that no amount of "cracking down" can increase worker productivity at CF&D. This is due to the fact of diminishing marginal productivity in production theory.. The law of diminishing marginal returns means that the productivity of a variable input declines as more is used in short-run production, holding one or more inputs
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Sub: Economics

Topic: Micro Economics

fixed. The primaries reason the marginal product of this variable input declines is the fixed input. The fixed input imposes a capacity constraint on short-run production. While adding additional workers can and do increase total taco production, the extra production attributable to these workers is bound to fall as the capacity of the fixed input is approached. Thus declining in the productivity of the newly hired sheet metal workers does not imply the labors are lazy or inefficient .This is quite obvious in the short run production theory. Hence crack down of new workers will not increase the productivity and of no help in such a case. If you like to download the complete solution , visit our solution library by copying to your browser the following link
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