Business is booming at a local fast food restaurant
1. Business is booming at a local fast food restaurant. It is contemplating adding a new grill and french fry machine, but the day supervisor suggests simply adding more workers. How should the manager decide which alternative to pursue? What would happen if too much labor is hired without an addition to capital? Explain using economic terms.
2. Read the following short article and answer the question:
Vargas, L. (2001). “Maquiladoras: Impact on Texas Border Cities,” in The Border Economy, Federal Reserve Bank of Dallas. Retrieved on December 2, 2011 from: http://www.dallasfed.org/research/border/tbe_vargas.html
How does this article apply the marginal decision rule to the problem of choosing the mix of factors or production (capital intensive vs. labor intensive methods of production)? How do maquiladoras benefit the U.S. economy?
3. What is the difference between the short-run and the long-run for a perfectly competitive firm in terms of costs and profits? Explain why a perfectly competitive firm may continue to operate in the short-run even with a loss of profits.