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Consider a firm that specializes in typing papers for professors who do not know how to type. Suppose that the technology for the firm is such that it has two inputs: secretaries and computers. Each secretary needs a computer in order to produce something, and no secretary can work on more than one computer at a time. Thus, computers and secretaries are perfect complements in production. However, secretaries can specialize - with some typing text, others typing equations, yet others drawing graphs on the computer. Thus, as the number of secretaries and computers goes up by x%, output of typed papers goes up by more than x%.
a. Suppose the firm currently employs one secretary and one computer, and this secretary is therefore able to type 2 papers per day. What is the daily marginal product of this first secretary? Given the technology of the firm (as described above), what is the marginal product of the second secretary? Is the marginal product declining?
b. Now suppose that both a second secretary and a second computer are hired. As a result of specialization, the two secretaries together can now type 5 papers per day. Does this firm have increasing or decreasing returns to scale in the current range of its production function?
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