Wellstone is a furniture manufacturer for the residential market that creates a variety of furniture pieces for the dinning room, living room and bedroom. One of the company’s strategies has been to hold pieces fixed at their current levels. At a management meeting the president of the company asked about the company’s production goals for the next quarter. The operations manager responded in favor of increasing production and thinks that if would not affect their average cost, or may even lower them.
Assuming the labor is the only variable input, is the operation manager’s conclusion about an increase in production right?
Explain your answer using relevant production process metrics (such as ATC, MC, Variable Costs, Fixed Costs, productivity, etc.).
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