Asked by Leston Alexis on Jul 21, 2024
Verified
The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.
Widgets
A generic term often used to represent a hypothetical product in economics and business discussions.
- Acknowledge and interpret the principles of economies of scale and diseconomies of scale.
Verified Answer
LB
lethy booshJul 28, 2024
Final Answer :
She is most likely incorrect because of the law of diminishing returns. Adding more and more of a variable resource (labor) to a fixed resource (the factory and machinery) should cause output to increase, but at a decreasing rate. If the company is experiencing diminishing returns, we might expect something like 20 workers producing 1,800 units, 30 producing 2,500 units, and 40 producing 3,300 units.
Learning Objectives
- Acknowledge and interpret the principles of economies of scale and diseconomies of scale.
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