Question:

William is the owner of a small pizza shop and is thinking of increasing products and lowering costs. William’s pizza shop owns 4 ovens and the cost of the four ovens is $1000. Each worker who is employed is paid $500 per week.

a. Which inputs are fixed and which are variable in the production function of William’s pizza shop? Over what ranges do there appear to be increasing, constant and/or diminishing returns to the number of workers employed?

b. What number of workers appears to be most efficient in terms of pizza product per worker?

c. What number of workers appears to minimize the marginal cost of pizza production assuming that each pizza worker is paid $500 per week?

d. Why would marginal productivity decline when you hire more workers in the short run after a certain level?

e. How would expanding the business affect the economies of scale? When would you have constant returns to scale or diseconomies of scale? Describe your answer.

(Please show all your calculations and process. Describe your answer for each question in complete sentences, whenever it is necessary.)