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Canadian Fabrication & Design

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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 inefficiently 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. Fully explain your alternative in terms of production theory.

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Solution Preview

Each additional worker is producing less because of the law of diminishing returns. This law says that the marginal production of any factor of production (in this case labor) will at some point start to decrease as that factor of production is increased. This means that the cost of producing each new product is higher ...