For each of the following situations, determine whether the manager is concerned
ID: 1217992 • Letter: F
Question
For each of the following situations, determine whether the manager is concerned with a short-run or a long-run production decision. Explain briefly in each case. a. A petroleum drilling supervisor on an offshore drilling platform decides to add an extra six-hour shift each day in order to keep the drill rig running 24 hours per day. b. The vice president of offshore petroleum drilling operations in the Gulf of Mexico chooses to deploy three more offshore drilling platforms in the Gulf. c. A manufacturing engineer plans the production schedule for the month. d. After studying a demographic report on future increases in birthrates, a hospital administrator decides to add a new pediatric wing to the hospital.
Explanation / Answer
a. Short run.
This is because in the short run the manager can only increase the hours of the shift to increase its production level. It cannot immediately build new factory or machine to meet its production requirements, which may be high only for a short duration.
b. Long run.
Expanding the production process means building more capacity, which can only be done in the short run. In the long run, this capacity building is also a variable cost rather than fixed.
c. Short run.
Planning production process for a month is a short run decision. In this period there would be certain costs that would be fixed. Only variable costs can be varied to make any change in the production levels.
d. Long run.
Building pediatric wing would imply more capacity. When the building or infrastructure could be changed no more remains fixed cost it becomes variable costs, which is only in the long run.
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