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decreasing returns to scale

decreasing returns to scale

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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4.8 Michelle's business produces ceramic cups using labor, clay, and a kiln. She uses labor and clay in a fixed proportion, but has only one kiln. She can manufacture 25 cups a day with one worker and 35 with two workers. a. Does this information illustrate decreasing returns to scale or a diminishing marginal product of labor? What is the likely explanation for why output doesn't increase proportionately with the number of workers? b. Michelle believes that if she could use two kilns and two workers, she could produce 55 cups a day. If so, what can you say about returns to scale? 11 1 1
Transcribed Image Text:4.8 Michelle's business produces ceramic cups using labor, clay, and a kiln. She uses labor and clay in a fixed proportion, but has only one kiln. She can manufacture 25 cups a day with one worker and 35 with two workers. a. Does this information illustrate decreasing returns to scale or a diminishing marginal product of labor? What is the likely explanation for why output doesn't increase proportionately with the number of workers? b. Michelle believes that if she could use two kilns and two workers, she could produce 55 cups a day. If so, what can you say about returns to scale? 11 1 1
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