After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or ineffectively supervised (or possibly both), the CEO instructed the shop foreman to "crack down" on the new workers to bring their productivity levels up. Explain carefully in terms of production theory why it might be that no amount of "cracking down" can increase worker productivity at CF&D. Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers.

Q1 discuss the law of diminishing returns (the marginal benefit of adding a productive resource must, at some point, decline.)

Q2, discuss returns to scale. Increasing all factors of production by x% COULD raise output by x%.

The Teenager Company makes and sells skateboards at an average price of $70 each. During the past year, they sold 4,000 of these skateboards. The company believes that the price elasticity for this product is about -2.5. If it decreases the price to $63, what should be the quantity sold? Will revenue increase? Why?

To understand why "cracking down" might not increase worker productivity at Canadian Fabrication & Design (CF&D), we need to delve into production theory. In this scenario, the CEO assumed that increased supervision or disciplinary actions would lead to improved productivity, but there could be underlying factors at play that make this approach ineffective.

One possible explanation is the diminishing returns to labor, a concept in production theory. As CF&D hires more sheet metal workers, there might be a point where the benefits of adding more workers start to diminish. This occurs when the existing workers and resources are no longer efficiently utilized to accommodate the new workers. In other words, the production process becomes less productive as more workers are added.

This phenomenon is evident from the information provided, as productivity declined with each new worker hired. Adding more workers without addressing the underlying issues might only exacerbate the problem and further reduce productivity.

Instead of "cracking down" on the workers, CF&D should consider alternative strategies to improve productivity. Here are a few possibilities:

1. Training and Development: Implementing training programs to enhance the skills and knowledge of the new workers can lead to improved productivity. By providing them with the necessary tools and knowledge, CF&D can ensure that the workers are equipped to perform their tasks efficiently.

2. Process Evaluation and Optimization: Conduct a thorough review of the production process to identify bottlenecks, inefficiencies, or areas that require improvement. By optimizing the workflow and eliminating unnecessary steps, CF&D can enhance productivity and overall performance.

3. Team Building and Collaboration: Foster a positive work environment that encourages collaboration and teamwork. Promote effective communication channels to ensure that ideas and feedback flow freely between workers and supervisors. This can result in better coordination and increased productivity.

4. Incentive Systems: Implement performance-based incentive systems that reward workers for achieving or exceeding productivity targets. These can act as motivators and encourage employees to work more efficiently.

By focusing on these alternatives rather than "cracking down" on workers, CF&D has a better chance of successfully improving productivity and ensuring sustainable growth.