Evaluating a Production Decision
A factory manager is analyzing a production process where output increases with labor, but each additional hour of labor adds less output than the previous one. At the current level of 500 labor hours, the manager calculates two figures:
- The average output per hour is 15 units.
- Adding one more hour of labor would increase total output by 10 units.
Based on these figures, the manager concludes, 'Since the contribution from the next hour is less than our current average, we are operating inefficiently and should reduce our labor hours.'
Evaluate the manager's conclusion. Is reducing labor the correct action if the company's primary goal is to maximize its total output? Justify your reasoning.
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