Sally Greenhorn has just graduated from a noted business school but does not have the foggiest idea about her new job with a firm that sells shrink-wrapped dog biscuits. She has been given responsibility for a new line of turkey flavored biscuits and must decide how many to produce.
She opts for the following strategy: (1) Begin by hiring one worker and one dog biscuit machine (assume workers and machines are used in fixed proportions); (2) if the revenues from this pilot project exceed its costs, add a second worker and machine; (3) if the additional revenues generated from the second worker/machine combination exceed what these cost, add a third; and (4) stop this process when adding a worker/machine combination brings less in revenues than it costs. Answer the following questions about SG's approach:
a. Is SG using a marginal approach to her hiring of inputs?
b. Does the approach adopted by SG also imply that she is following a MR = MC rule for finding a profit maximizing output?
c. SG's distinguished professor of marketing examines her procedures and suggests she is mistaken in her approach. He insists that she should instead measure the profit on each new worker/machine combination employed and stop adding new output as soon as the last one added earns a lower profit than the previous one. How would you evaluate his distinguished advice?