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Traditional economic theory suggests that firms make their decisions on supply and output

Traditional economic theory suggests that firms make their decisions on supply and output

Question 1

Traditional economic theory suggests that firms make their decisions on supply and output on the basis of profit maximization. However, looking at both short and long term profit maximization is crucial any have direct influences on managerial economists. On the basis of what you have learnt in managerial economics and your own readings (max of 400 words):

A. Explain why a firm may sacrifice short-run profits for long-run growth and profitability;

B. Explain how and why the management team of the firm may have different objectives (goals) than the owners of the firm; and

C. Explain how the owners of the firm can bring the management team's objectives (goals) to be consistent with the owners' goals.

Question 2

Suppose a firm has the following short-run production function where Q is the quantity of output per week and L is the number of workers employed.

Labor (L)

Output (Q) per week

1

55.5

2

120

3

190.5

4

264

5

337.5

6

408

7

472.5

8

528

9

571.5

10

600

11

610.5

12

600

13

565.5

A. Determine the average productivity (AP) and marginal productivity (MP) of labor.

B. When does the law of diminishing returns take place?

C. Determine the range of values for labor over which stages of production I, II, and III occurs.

D. Assume each worker is paid $8.325 per hour and works a 40-hour week. How many workers should the firm hire if (i) the price of the output is $6 and (ii) the price output increases to $8?

Please provide a detailed answers for all questions. the best detailed answers will be selected. Thanks, 

Johnson 07-Nov-2017

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