MBAA 523 Problem Set 4


1. 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 and other inputs such as those components purchased from suppliers (engines are one example) are variable. Airbus has received a substantial number of new orders and will increase its monthly aircraft production rate. Explain why the MPL will decrease above some level of labor as more workers are added. How does this decrease in MPL result in an 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 will the firm hire?

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