Giovanni's Pizereria Case Study

1075 Words 4 Pages
Giovanni, I think that your vision was good, but economically, it could use work. I believe that you had the right intentions on running you business, however I see where your problems come about. As your consultant, my job is to not only tell you where your mistake occurred, but also help you fix it. Obviously, Giovanni 's Pizzeria has a lot of potential and I want to help you achieve that success. While demand for your pizzas are high, you need to consider the business and economic decisions you are making. You had the right idea of hiring new workers to keep the demand high, but hiring new employees also means changing other things in your business as well. As you can see from the chart, the data shows that while you are hiring more employees, …show more content…
First, there is total production, the total output a production unit can produce, using different combination of the four factors of production. There is a term, marginal product, that is the output you get when adding a worker. Right now, your marginal product should be a lot higher than it is because you have eleven people making pizzas for you, but because you are in the short run and some factors stayed constant, the output is not as high as it should be. Diminishings marginal product is what is happening to you right now. This is when you continue to input units, workers, while you keep other units (four factors) constant, and the output (amount of pizzas) decreases. To fix your problem and meet the high demand, you have two options. You could always fire the workers that you hired and leave it to about two or three, and you would not have to change the capital, or land. If you would like to keep all of the workers, you could always open a second pizzeria. This would allow you to keep the workers, create another amazing pizzeria, and create and meet new demands. If you were to expand the company, you would need to consider the explicit costs that are involved. This includes, buying supplies, new equipment, rent, and wage. After choosing a decisions, and changing all of the factors, you can be apart of the long run. This means that as all factors of production began to change, the producer or factor will be producing in the long run. This change may take a little longer than you want, but changing all factors will ensure that diminishing marginal product will not occur. Since you are in the long run, when you open the new business you are going to need to add to the labor, land, and capital. When adding to the amount of these factors, you need to use the return to scale to find the percentage. The return to scale is the measuring of how much change the input will affect the

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