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Technological and managerial improvements in the U
Technological and managerial improvements in the U.S. automobile industry have resulted in increases in productivity. Other things being equal, an increase in the average product of automobile workers will
a. decrease the average cost of producing automobiles.
b. increase the average cost of producing automobiles.
c. have no effect on the cost of producing automobiles.
d. decrease fixed costs of producing automobiles.
Expert Solution
The correct answer to the given question is option a. decrease the average cost of producing automobiles.
An increase in the average product of automobile workers implies their productivity has increased which means that same number of workers can now produce higher number of automobiles. Thus, the total product or output of automobiles has increased without any increase in the total labor costs. Hence, one can infer that average cost of producing automobiles has decreased because the denominator in the the average cost (i.e. number of automobiles) has increased without any increase in the numerator (i.e. total cost).
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