Suppose You Are Deciding Whether or Not to Increase Production

question 138

Multiple Choice

Suppose you are deciding whether or not to increase production. If you produce one more unit your increase in cost will be $10, your average variable costs will increase to $9.50 and your average fixed costs will decrease. Finally, price you are able to charge will be $9. You should

• A)Increase production by at least 1 unit.
• B)Increase production by exactly 1 unit.
• C)Leave production unchanged, profit is maximized where you are.
• D)Shut down

Examine the impact of flexibility in the workplace on employee and employer relationships.

Understand the concept of the psychological contract between employers and employees.

Understand the concept of labor utilization and its adjustment mechanisms.

Recognize the influence of skill-based pay systems and flat organizational structures on flexibility.

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Definitions:

Phillips Curve

An economic model suggesting an inverse relationship between rates of unemployment and corresponding rates of inflation.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment within an economy.

Long-run Phillips Curve

A graphical representation showing the relationship between inflation and unemployment when inflation expectations are fully adjusted to actual inflation.

Natural Rate

The long-term unemployment rate that is observed once the effect of short-term cyclical factors has been removed, considered to be the rate of unemployment consistent with a stable rate of inflation.