# 6

## Project Description:

1) explain the difference between a short-run and long-run production function. cite example of thsi difference in a business situation.

3) wha are the key points in short-run production function that delineate the three stages of production? explain the relationship between the law of diminishing returns and the three stages of production.

5) define returns to scale. why is this considered a long-run phenomenon?

problem 2

p2) the ocean pacific fleet has just decided to use a pole-and-line method of fishing instead of gill netting to catch tuna. the latter method involves the use of miles of nets strung out across the ocean and therefore entraps other sea creatures besides tuna. concern for endangered species was one reason for this decision, but perhaps more important was the fact that the major tuna canneries in the united states will no longer accept tuna caught will nets. ocean pacific decided to conduct a series of experiments to determine the amount of tuna that could be caught with different crew sizes. the results of these experiments follow:

number of fishermen daily tuna catch (lbs)
___________________________________________________

0 0
1 50
2 110
3 300
4 450
5 590
6 665
7 700
8 725
9 710

a) determine the point at which diminishing returns occurs.
b) indicate the points that delineate the three stages of production.
c) supppose the market price of tuna is \$3.50/pound. how many fisherman should the company use if the daily wage rate is \$100.
d) suppose a glut in the market for tuna causes the price to fall to \$2.75/pound. what effect would this have on the number of fishermen used per boat? suppose the price rose to \$5.00/pound. what effect would this have on its hiring decision?
e) suppose the firm realizes that to keep up with the demand for tuna caught by the more humane pole-and-line method of fishing, each of its boats must catch at least 1,000 pounds of fish per day. given the preceeding data, what should it consider doing? explain.

an american company that sells consumer electronics products has manufacturing facilities in mexico, taiwan, and canada. the average hourly wage, output, and annual overhead cost for each site are as follows:
__________________________________________________
hourly rate \$1.50 \$3.00 \$6.00

output 10 18 20
per person

fixed \$150,000 \$90,000 \$110,000
cost

a) given these figures, is the firm currently allocating its production resources optimally? if not, what should it do? (consider output per person as a proxy for marginal product).
b) suppose the firm wants to consolodate all its manufacturing into one facility. where should it locate? explain.
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