Respond to the response below:

• Distinguish between the short run and the long run. What will differentiate the short run and the long run?

According to our text, the short run would be the period that is too short to gather all inputs of the business. In the short run, having fewer fixed items and focusing on productivity with labor is common. Maximizing profit is key, and this can be accomplished by adjusting variables such as hiring or reducing employees. In the long run, it is a more significant type of business where a company does not see fixed items but instead sees all equipment, product, and workers as variables. With the idea that all items are variables, businesses can adjust these variables to maximize profit.

• Describe fixed inputs and variable inputs. Which inputs are fixed, and which are variable in Sarah's bakery?

In Sarah's situation, the bakery has fixed ovens that will continue baking production and hiring variables such as one full-time employee and four part-time workers to continue productivity.

• Why would marginal productivity decline after a certain level of production?

Overly stacked variables such as labor will become less productive as the production output stays the same. In the example of Sarahs Bakery, having one full-time employee and eight part-time employees for production that four full-time employees could handle would not be economically productive. Sarah would be wasting more money on extra labor or variables.

• How can this problem of diminishing returns or marginal productivity be reduced or removed?

One solution would be the time an employee has been employed. The longer a worker is at the company, the more experience they have. More experienced workers can complete tasks a lot quicker than newer employees. In the example of Sarahs Bakery, you would hope that some part-time employees will excel at their job and the company could reduce the number of employees needed.