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Diminishing Marginal Productivity

The Bureau of Labor Statistics showed an astonishing 5 percent gain in productivity in 2001â??s fourth quarter. Some argued that technology had again made the economy more productive than ever before. White-collar workers are more likely to argue that the gains have been made on their backs. The recessionâ??s layoff survivors bitterly point to the various schemes management has employed to get them to work harder for less money.

â?¢ Longer hours. It is estimated that 20 percent of the workforce spends more than 49 hours a week on the job â?" mostly professional and white-collar workers.
â?¢ Reclassifying workers as managerial. Class action suits charging that firms are misclassifying jobs to skirt overtime pay are on the rise.
â?¢ Loading up on temporary workers. The ranks of temps grew 56 percent during the boom years â?" a just-in-time workforce that receives no severance pay and no benefits. The temps have been the fastest growing segment of employment in 2002.
â?¢ Making less do more. Firms are shrinking the workforce without reducing workloads. They are also forcing employees to work harder to increase sales.
â?¢ Shifting risk. Pay is increasingly tied to company performance. That saves money when profits disappear while spurring harder work.

This is all well and good for the present but what happens when the economy rebounds? The spectre of tight labor markets in the future coupled with the feeling of exploited workers with long memories, does not auger well for those firms who are seeking enhanced profits right now.

Questions:
1. Does this case illustrate the law of diminishing marginal productivity?
2. In this case, less and less of a single factor, labor, is being used. Does this have anything to do with the law of diminishing marginal utility?
3. Does the case distinguish between long-run and short-run profits?
4. Does the case distinguish between long-run and short-run production costs?
5. If you were an employee of one of these companies, what would your behavior be when the economy turned for the better?

Ok, so any help on this would be greatly appreciated.

I thought that the law of diminishing marginal utility was a law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
And the law of diminishing marginal productivity states that as more and more of a variable input is added to an existing fixed input, after some point the additional output one gets from the additional input will fall.

So does this have anything to do with them? With the law of diminishing marginal productivity I thought it had to do with productivity decreasing as labor or workers increase. But for this case it's saying that there are less workers with the result being higher productivity. So I'm guessing the answer to question #1 is that it does not illustrate the law of diminishing marginal productivity?

And for the question #2, what does using less labor have to do with the law of diminishing marginal utility? I thought it had to do with the amount of satisfaction one derived from consumption of something and how it decreased as more of that something was consumed? Could it mean that the workers who now have to do more are becoming increasingly more unhappy with having to produce it?

And does this case distinguish between long and short-run profits and production costs? How do I tell the difference between the two in the case study? It said that there was a 5% gain in productivity in 2001's fourth quarter; is that considered a short or long-run perspective? From reading the case it would seem to me that profits are up in both the short and long-run and production costs are down for both. What do you think?

Any help in clarifying this would be greatly appreciated!

Solution Preview

The following is a "start"....you should reword it into your own style of writing otherwise your prof will recognize that someone else wrote the answer other than you.....you also might want to add some "graphics" to enhance the key ideas expressed (look up the key ideas on the web & copy/paste graphics from the sites).

1. Does this case illustrate the law of diminishing marginal productivity?
"The Law of Diminishing Marginal Productivity of labor" means if a worker is working eight hours in a day, his efficiency in the first hour will be higher than the second hour .second hour skill of production is more than the third hour. In his last hour that is in the eigth hour his efficiency will be ...

Solution Summary

Diminishing Marginal Productivity is integrated in this solution.

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