Managerial Economics and Strategy, 2/e

5 Production

But why make a big production out of it?

Learning Objectives

1. Use a production function to describe the relationship between inputs and output.

2. Predict the effect of short-run changes in labor on output.

3. Explain the long-run trade-off between labor and capital in production.

4. Determine whether a production function has decreasing, constant, or increasing returns to scale.

5. Describe the effect of innovation on production.

Managerial Problem Labor Productivity During Recessions

The American Licorice Company recently invested $10 million in new labor-saving equipment in its Union City plant, including an automated drying machine. This new equipment allowed the company to cut its labor force from 450 to 240 workers.

The factory produces ...