BACKGROUND

Automation, broadly referring to the adoption of machines and computers in the production process has become increasingly more popular across many sectors and countries. For example, the market for industrial robots has experienced a dramatic expansion in the last couple of decades, as shown in Figure 1.

Figure 1 Annual shipments of industrial robots worldwide (thousand units)

Source: Modified from Exhibit 2 , McKinsey & Company, Industrial Robotics: Insights into the Sector’s Future Growth Dynamics, July 2019.

Note: Forecast 2018-2021

At the same time, the prices of labour and robots have been changing. The case of the US manufacturing sector in the last few decades is shown in Figure 2.

Figure 2: Robot prices and labour compensation in manufacturing in the US (1990=100)

Source: Tilley, Jonathan, “Automation, Robotics, and the Factory of the Future”, September 7, 2017, McKinsey & Company.

Now, consider Bruno, who owns a small manufacturing firm and produces windscreens for automobiles. Currently Bruno uses two robots and ten workers including Angela in his production.

Answer the following questions based on the topics covered in the lectures from weeks 1-6.

[Question 1]    Based on the information in Figure 2, illustrate in a diagram how Bruno would decide to use more robots in his firm to minimise production costs. Your diagram should have the number of workers on the horizontal axis and the number of robots on the vertical axis. It is not necessary to use specific numbers. [5 marks]

[Question 2]    Explain in 100-130 words why the market for industrial robots have expanded in the last couple of decades as shown in Figure 1. You must refer to the information from Figure 2 and the diagram you drew in the previous question. [5 marks]

[Question 3]    Draw the production function of Bruno’s firm. Your diagram should have the number of workers on the horizontal axis and the number of windscreens on the vertical axis. Illustrate the effect of Bruno’s decision to use more robots on his production function. Briefly explain your diagram within 50 words. [5 marks]

[Question 4]    Discuss in 100-150 words how Bruno’s decision to increase the use of robots and the general trend of increasing automation could affect in the future the following:

• Angela’s bargaining power,
• Angela’s real wage, and
• Bruno’s profit.

You must refer to Figure 3 in your discussion. The description of Figure 3 can be found in Unit 4 Section 12 of the prescribed textbook. [10 marks]

Figure 3: Fraction of offers rejected in the ultimatum game, according to offer size and the number of Responders

[Question 5]    Does Bruno’s decision to use more robots bring about a Pareto improvement? Discuss in 50-100 words based on your answer for Question 4. [5 marks]

[Question 6]    Does Bruno’s decision to use more robots result in a fairer outcome? Discuss in 150-200 words based on your answer for Question 4. Your discussion must use any TWO of the following ideas. [10 marks]

• substantive judgement of fairness
• procedural judgement of fairness
• consequentialist approach
• deontological approach

See the week 6 lecture Section D and the supplementary videos to assist your discussion.

[Question 7]    Angela has been working at a real wage rate of $25 per hour. Illustrate in a diagram how Bruno’s decision to use more robots could affect Angela’s future levels of

• real wage,
• utility,
• free time, and

Your diagram should have Angela’s daily free time on the horizontal axis and her daily consumption on the vertical axis. Briefly explain your diagram within 70 words. [5 marks]

[Question 8]    Choose one government policy measure that you think can mitigate the potential issue(s) of increasing automation you analysed in the previous questions. Discuss in 100-150 words the reason(s) behind your choice. You must cite at least one reputable source from your own research. Include the full reference at the end of your discussion, which will not count towards the word limit. Use a standard referencing system (e.g. Harvard style). [5 marks]

You may use the following resources to help find reputable sources and cite them:

• Webinar recording: Critical Thinking and Persuasive Writing
• Referencing guide from MQ Library website

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