ECO404 GDB Solution Spring 2017


Spring 2017

The Case:

R&R Co. is a producing unit of local hand bags in a town in which inputs like building, labor, machinery and raw materials etc. are transformed into output or total product (TP) under three stages of production. In short run, it is assumed that one of the factors like building is fixed input and other inputs are variable. Following table has been provided by their production department;

Labor Total Product (TP) Marginal Product (MP)
1 15 15
2 35 20
3 60 25
4 80 20
5 90 10
6 90 0
7 80 -10


Being the student of managerial economics, you are required to analyze the given data and;

  • Suggest as a rational manager that how much labor should be employed by R&R Co. for having efficient production of hand bags and why?
  • Why the firm should not employ labor beyond the level of efficient production?