Guided Response: Respond substantively (a minimum of 100 words) to at least two of your classmates’ posts. What is similar or different between your post and theirs? What advice could you offer them? Substantive responses use theory, research, experience, or examples to support ideas and advance class knowledge on the discussion topic.
WK 3
Respond to #1:
According to Amacher and Pate (2019), a production function is outcome of inputs like fixed inputs and variable inputs. Fixed inputs are resources that cannot be changed in the short run whereas variable inputs are resources that cannot vary in the short run. Example of the fixed inputs in Sarah’s bakery would be the building and the four ovens. Examples of the variable inputs in Sarah’s bakery would be the labor and the utilities at her bakery.
Short run decisions typically involve a time period short enough where an input cannot be varied. Long run decisions typically involve a time period long enough where multiple inputs can vary. An example of short run decisions would be increasing the outputs at the bakery to turn more profit which requires additional labor. The additional increase of the inputs that results in the additional outputs is marginal productivity. Marginal productivity will decline at a certain level because the fixed inputs always stay the same and at some point, reach a cap. For example, a fixed input like Sarah’s four ovens can only produce so many output because only a certain number of items can bake at the same time. Therefore, even is Sarah increases the labor of the employees, there may be times where something cannot bake because the ovens are full.
The more variable inputs added to a set of fixed inputs increases the marginal productivity. Therefore, as in the example of not having enough ovens to bake all of the goods at Sarah’s bakery can easily be solved. If there is a need for the additional labor and from a financial perspective, it makes senses, Sarah could purchase the additional oven which would be a fixed input. This is turn will allow the additional labor to result in the increase in production and productivity.
Amacher, R. and Pate, J. (2019). Principles of microeconomics (2nd ed.). Retrieved from https://content.ashford.edu
Respond to #2:
Sarah owns a bakery that has four ovens, one full-time exempt administrative employee, and eight part-time hourly bakers.
Distinguish between the short run and the long run. What will differentiate the short run and the long run? The short run is the period of time that is shortened to vary all the variables; with one or more of the inputs must remain fixed. Example per the bakery is the building, and Four Ovens. In the short run, labor is generally the only variable. The example would be the bakers or employees. The long run is the period of time in which all inputs, including physical operations and equipment, can be varied. In the example it would be if Sarah had a mobile bakery. (Amacher & Pate, 2019) Ch 7.4
Describe fixed inputs and variable inputs. Which inputs are fixed, and which are variable in Sarah’s bakery? – Fixed inputs are the productive resources that cannot be varied such as the size of Sarah bakery building. -Variable inputs are the productive resources that can be increased or decreased in the short run such as the bakers or employees. (Amacher & Pate, 2019) Ch 7.4
Why would marginal productivity decline after a certain level of production? Marginal production starts to decline at a certain level due to a balance of total product and an increase in labor. Mr. Clifford stated it best, if you have 1 oven and 1 employee production is great…but as the number of employees increases you reach a peak and after that the diminishing marginal returns. (Clifford, 2015) In the above situation 4 ovens and 9 employees is a very productive number and Sarah’s bakery should see positive outputs.
How can this problem of diminishing returns or marginal productivity be reduced or removed? In the above situation there is no diminishing return or due to there is a balance of Fixed inputs. The Variable inputs would cause a productivity issue and can be adjusted by hiring more full-time bakers.
Benjamin Hill
References
Amacher, R., & Pate, J. (2019). Pinciples of Microeconomics (2nd ed.). Retrieved from https://content.ashford.edu
Clifford, J. (2015, Nov 12). Diminishing Marginal Returns- Micro 3.1. Retrieved from YouTube.com:
Respond to #3:
According to Amacher and Pate (2019), the long-run average cost curve is derived from the short-run average total cost in that the long-run average cost is the lowest average cost per unit for all outputs. The long-run average cost can be represented as a curve where is shows the lowest cost for a unit over time. The short-run average total costs and resemble that same curve. The long-run average cost can be series of short-run average total costs.
Economies of scale are the reduction of the long-run average cost from an increase in total output. Whereas diseconomies of scale are the increase in the long-run average cost from an increase in total output. Some examples of something that affect economies of scale is the utilization of new technology that leads to an increase in output or bulk orders that lead to lower per unit costs. In my workplace, we continue to use technology to streamline processes and make things easier and more efficient. We recently launch a new system that allows employees to clock in, read the breaking news, and touch base with their leader all on an iPad. They are then ready to help customers. In the past, everything was very manual and took more time. Some examples of things that affect diseconomies of scale are lower operational efficiencies due to overstaffing and as the company grows, the communication from the top down becomes more difficult due to the size of the company. An example of this within my organization is in the last few years, the company has growth and with that growth, it required more headcount at each location. Some of those locations were kiosks and when everyone was working, there was not enough space to assist customers and demonstrate products. Within the last few months, my company has decided to move all kiosks into store locations to ensure the customer experience is favorable and the associate can properly assist those customers.
Economies of scale specific to the technology piece is the biggest way that can help my company compete in its industry. The technology helps the associates be more productive and shows customers that they use the same technology that we sell. This in turn, allows a customer to envision how they could use the product and potential purchase it for themselves.
Amacher, R. and Pate, J. (2019). Principles of microeconomics (2nd ed.). Retrieved from https://content.ashford.edu
Respond to #3:
How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve? The long-run average cost (LRAC) curve represents the lowest attainable average cost of producing any level of output. This can be derived by taking the optimal size of physical operations for producing where the minimum point on a short-run average total cost curve (SRATC) is tangent to the long-run average cost curve at its minimum point. (Amacher & Pate, 2019) CH 8.3 This is how Sysco shows improvements over its competition and can show how even at its low points not even US Foods Holding Corp (USFD), United Natural Foods (UNFI) can even come close to Sysco’s output levels. (Trainer, 2018)
Describe economies of scale and diseconomies of scale. Economies of scale – A firm’s size increases, the average cost begins to rise causing changes in long-run average cost, as well as increased plant size. Diseconomies of scale are increases in long-run average cost that are due to increased plant size. (Amacher & Pate, 2019) Ch 8.3
What are the determinants of economies of scale and diseconomies of scale, respectively? In my opinion the determinants of economies of scale and diseconomies of scale is the size at which the company maintains control over public and private issues within the company. The larger the company the less connected upper management is with production and workers.
Using a real-world company (other than Sysco), explain the causes of economies of scale for your company. The current company I work for is would say they are very much within the economies of scale but switching from serving to employee I would say they are very diseconomies of scale. Top down leadership is the goal but by the time a decision is made it could be months before the button is pushed to make it happen and then years before implementation. It is because of all the bureaucracies and organizational rules that tend to hamper a great decision like selling or donating furniture locally when new furniture is to be disposed of. The process is so long and drawn out it can take days to just move it from the building when new items arrive.
How would economies of scale help your company compete in its industry? The company I work for is not in the competition of industry but if it were run like a business there could be so many areas where top down control could be taken advantage of. Areas like resource management, budget controls (releasing of funds faster), as well as personnel shortages/job fill within weeks not 6-9 months.
Benjamin Hill
References
Amacher, R., & Pate, J. (2019). Pinciples of Microeconomics (2nd ed.). Retrieved from https://content.ashford.edu
Trainer, D. (2018, Jan 29). Sysco Feasts On Economies Of Scale For Strong Competitive Advantage. Retrieved from Forbes.com: https://www.forbes.com/sites/greatspeculations/201…
