Phase 3 Behavioral Economics IP - Essay Example

A good example of a technological change is computers. Computers were invented early in the 19th century but they are still being improved. This improvement is what is referred as innovation. Computers are now used that ever before in all aspects of life from communication, production, security operations, management and education. This is now the diffusion of the use of computers. In the case of a bread factory, technological change is important to ensure that profits are maximized while costs are kept at minimum.

In the bakery, I would use modern bread making technology that reliably increases the output of quality bread. This ensures that costs of substandard breads are reduced. To cut labor costs I would use computer controls and automation in the production processes. 2 (a) Develop a table that you believe shows the explicit fixed costs of the bread factory and the total amount of the costs. Explicit fixed costs Costs ($) Office equipment 1000 Heat & light 120 Programmer’s salary 540 rent 400 insurance 250 Cleaning supplies 100 Total 2410 2 (b).

Describe your variable costs Variable costs are costs that change with change in volume of production (Tucker, 2011). In the bread factory, variable costs include the costs of yeast, flour, packaging material and costs of hiring casual laborers. 3. Because you are not an expert yet on analyzing costs and optimal production levels, you decide to do a very simple analysis of your short-run fixed and variable costs if you expand. You decide that your only fixed cost will be the ovens and the variable costs will be the workers.

  Quantity of Workers Quantity of Ovens Quantity of Loaves of Bread Produced Cost of Ovens Cost of Workers Per Week Total cost Average total cost = total cost/no. of breads Marginal product of labor = change in output/ unit change of labor Average product of labor = quantity/labor 0 2 0 500 0 500 0 0 0 1 2 50 500 450 950 19 50 50 2 2 125 500 900 1400 11.2 75 62.5 3 2 210 500 1350 1850 8.8 85 70 4 2 300 500 1800 2300 7.7 90 75 5 2 410 500 2250 2750 6.7 90 82 6 2 550 500 2700 3200 5.82 140 91.7 7 2 625 500 3150 3650 5.84 75 89.3 8 2 660 500 3600 4100 6.2 35 82.5 9 2 700 500 4050 4550 6.5 40 77.8 10 2 730 500 4500 5000 6.

85 30 73 a. Calculate the total cost and the average total cost, and add it to the table. b. Calculate the marginal product of labor, and add it to the table. c. Calculate the average product of labor, and add it to the table. 4. Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run? Short run is a relatively short period of time in which a company makes temporary changes in the operations. In the bread factory, it requires more time and effort to bake one loaf of bread than it would take on average to bake more loaves of bread.

The more laborers you hire the more the number of loaves produced. However, as you hire more and more workers, the benefit-derived from each additional employee will eventually decline. The reason behind this is that the marginal product of labor of each additional employee declines in the short run leading to diminishing marginal return (Taylor & Weerapana, 2012).