Sarah owns a bakery that has four ovens, one full-time exempt administrative employee, and eight part-time hourly bakers.

Based on this information, respond to the following:

• Distinguish between the short run and the long run. What will differentiate the short run and the long run?
• Describe fixed inputs and variable inputs. Which inputs are fixed and which are variable in Sarah’s bakery?
• Why would marginal productivity decline after a certain level of production?
• How can this problem of diminishing returns or marginal productivity be reduced or removed?