Question

The table below gives the relationship between the number of labor hours and the corresponding productivity per week in terms of the number of boxes of cookies that can be produced by Mother’s® Cookies Bakery production facility, based in Oakland, California. Labor Hours 0 100 200 300 400 500 600 700 Productivity per Labor Hour 0 30 35 40 45 40 35 30 Is the production process described above short-run or long-run? Justify your answer. Use the data given to describe how the changes in the “productivity per labor hour” influence the cost structure of Mother’s® Cookies Bakery. Make any assumptions necessary to calculate the most efficient level of production per week.

Answer 1

Since the productivity per labor hour is first increasing and then starts to decrease, thus the production process described above is the case in short run where marginal product increases and then decreases due to law of diminishing marginal returns operating in the short run.

Since the marginal product is decreasing in initial stages, thus the marginal cost will fall initially and then as the marginal product of the workers will start decreasing , then marginal cost associated with the production process will start increasing.

The most efficient level of production per week is the level of production where productivity per hour of labor is maximum and this is maximum at 45 units where 400 units of labor hours are employed.