William is the owner of a small pizza shop and is thinking of increasing products and lowering costs. William’s pizza shop owns four ovens and the cost of the four ovens is $1,000. Each worker is paid $500 per week.
Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.
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- Which inputs are fixed and which are variable in the production function of William’s pizza shop? Over what ranges do there appear to be increasing, constant, and/or diminishing returns to the number of workers employed?
- What number of workers appears to be most efficient in terms of pizza product per worker?
- What number of workers appears to minimize the marginal cost of pizza production assuming that each pizza worker is paid $500 per week?
- Why would marginal productivity decline when you hire more workers in the short run after a certain level?
- How would expanding the business affect the economies of scale? When would you have constant returns to scale or diseconomies of scale? Describe your answer.