MBAA 523 – Define the short-run and long-run

MBAA 523Problem Set 41. Define the short-run and long-run and provide an aviation example.2. In the short-run, Airbus manufactures aircraft at its existing factories; however, labor andother inputs such as those components purchased from suppliers (engines are oneexample) are variable. Airbus has received a substantial number of new orders and willincrease its monthly aircraft production rate. Explain why the MPL will decrease abovesome level of labor as more workers are added. How does this decrease in MPL result inan increase in MC?3. The table shows the marginal product of labor for a manufacturing firm in the short-run.The cost of an additional worker is $100 per day including benefits. The product sells for$2 per unit. Compute the value of the marginal product of labor. How many workers willthe firm hire?Labor(L)01234567891011MPLVMPL7416823828430630427822815456-664. NEW DELHI — Each fall at harvest time, Leela Dhar Rajput used to hire 25 farm handsto work from dawn to dusk every day for a week bringing in the rice crop on his 20 acresof land in the central Indian state of Madhya Pradesh. This year, he plans to use acombine harvester instead. With the machine and the help of two or three men, heexpects to finish the job in a single day. Indian agriculture is belatedly engaged in amechanical revolution, boosting productivity in a sector that has long relied on cheap,surplus labor to tend crops in the world’s second most populous country. Jobopportunities in factories and services, plus the government’s rural job-creation programguaranteeing 100 days of employment a year on public-works projects, have drained thepool of workers in villages. "I just can’t find enough people to do the hard work in thefields anymore," says Mr. Rajput. [Mukherji, B. (2013, October 29). India’s FarmersMechanize. WSJ, B8.]Show and label the amount of capital (K) and labor (L) employed with the displayedisocost line and then insert a new isocost reflecting a substantial increase in the price ofPage 1 of 2labor. Mr. Rajput intends to harvest the same quantity of rice as last year. Show andexplain the effect on the K and L employed.KL5. Complete the table (the easiest method is to do the computation in MS Excel). Create aline graph of AFC, AVC, ATC, and MC (in Excel, select the 4 columns, then Insert/Line,and choose the first graph option). Explain the reason for the shape of each curve. Thecompleted table and graph can be copied and pasted into this document. Hint: Becertain that your line graph looks similar to those in Baye (your graph will not be assmooth as in Baye). If not, there is likely an error in your computations.Q0100200300400500600FC$10,000VCTCAFCAVCATCMC$200125133.341502002506. Define economies of scale. Is there evidence of economies of scale in the airlineindustry? (Hint: Consider Low-Cost-Carriers). In large commercial aircraftmanufacturing?