Question

Sarah owns a bakery that has four ovens, one full-time exempt administrative employee, and eight part-time hourly bakers.

Based on this information, respond to the following:

• Distinguish between the short run and the long run. What will differentiate the short run and the long run?
• Describe fixed inputs and variable inputs. Which inputs are fixed and which are variable in Sarah’s bakery?
• Why would marginal productivity decline after a certain level of production?
• How can this problem of diminishing returns or marginal productivity be reduced or removed?

Answer 1

Distinguish between the short run and the long run. What will differentiate the short run and the long run?T

Short run is more immediate; It’s a period of time that it too short to factor in all variables . Whereas the long run is a more extended length of time accounting for multiple factors including an increased number of locations, equipment and labor fluctuations.The most noticeable difference between the short run and the long run is the difference between what Sarah’s bakery right now (short run) versus what Sarah’s bakery will potential have in the future (long run).

Describe fixed inputs and variable inputs. Which inputs are fixed and which are variable in Sarah’s bakery?

Fixed inputs do not change in the short run; For instance, the square footage of Sarah’s bakery and the four ovens she owns would be a fixed input. Variable inputs are the productive sources that can be increased or decreased in the short run. Labor is a common variable input so Sarah’s full-time exempt administrative employee’s hours and her eight part-time hourly bakers’ hours would be a variable input. During a busy holiday season, Sarah’s bakery would require more hours from employees whereas a slower season Sarah would schedule her employees more sparingly. The fluctuation in employees’ hours is a variable input.

Why would marginal productivity decline after a certain level of production?

Marginal productivity declines after a certain level of production because of the principle of diminishing re-turns. Let's look at example of watering an already wet field. The yield of crops will not increase with more water. In fact, with each additional unit of water less yield will be seen because each additional unit of variable input produces a smaller increment in output.

How can this problem of diminishing returns or marginal productivity be reduced or removed?

Balance is necessary to prevent marginal productivity and lessen the amount of diminishing returns. Employees need to be scheduled accordingly. A busy season with increased orders warrants having more staff, but during a slower off-season less hours should be scheduled to maximize each employees’ abilities.