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= f(x)
= 2x.
= f(x)
where
y = an output
x = an input
Plant size is
fixed, labor
is variable
Both Plant
size and labor
are variable
Plant size is
Short Run
fixed, labor
is variable
To increase
Short Run
production firms
increase Labor
but cant expand
their plant
Firms produce in the short run
Plant size is
variable, labor is
variable
To increase
production firms
increase Labor
and
expand
their
Plant
size
is
plant.in the
variable
planning
stage
10
Thus
LONG RUN
The
This
01/04/2014
Product (TP)
Marginal Product (MP)
Average Product (AP)
13
Total
01/04/2014
14
Total Product
Total Product
INCREASING FUNCTION.
Labor
Labor
Labor
01/04/2014
Number of units of
output produced
Constant Slope
25
20
5
5
15
Output increases
by the same
amount for each
worker hired
5
10
5
5
5
0
Increasing Slope
75
25
50
20
30
15
15
5
10
5
75
70
60
Decreasing Slope
5
10
15
ALL workers become
LESS productive as
the plant gets crowded
Output
increases
by
and
equipment
breaks
decreasing
amounts
down
often
for each worker hired
45
20
25
25
Increasing
125
120
110
Decreasing
5
10
15
95
20
75
25
50
20
30
15
15
5
10
5
10
-5
5
10
15
95
-10
-15
20
75
25
50
20
30
15
5
15
10
5
2
10 11 12
L
As L increases, Q increase by the
same amount
Q
As L increases, Q increase by
increasing amounts
Smaller steps
Decreasing Slope
As L increases, Q increase by
decreasing amounts
L
01/04/2014
the
Total
Product
22
Is the slope
Function
MP = 30 Slope = 30/1 = 30
TP(Q)
160 units
30 units Rise Q
130 units
Run L
The 10th
worker adds
30 units to
production
10
L (Workers hired)
MP = 10
TP
160 units
30
Rise
130 units
Run
3
9
12
MP
25
27
23
MP = 12
-4
20
MP = 8
MP = 5
12
8
MP = 2
1
1st
2
2nd
3
3rd
4th
5
5th
MP = -4
27
25
23
MP rises up
to 2nd
worker
MP
MP falls
after to
2nd
worker
MP = 12
20
MP becomes
negative after
4th worker
MP = 8
MP = 5
MP = 2
1
5
2
MP = -4
Or
Output per worker.
27
01/04/2014
When 10 workers
produce 150 units,
Output per
worker = 15
units
TP
150 units
If we draw a
line (a ray)
from the
origin to a
point on the
production
function
AP = Q/L
AP = 150/10 = 15
Q
Rise
Run
L
10
the slope as L
increases?
Q L AP
5 5 1.00
82
80
70
TP
20 10 2.00
30 12 2.50
70 16 4.38
30
80 20 4.00
20
82 23 3.57
L
10 12 16 20 23
29
AP AP Increases up
to 16 workers
AP Decreases
after L=16
Q L AP
5 5 1.00
20 10 2.00
70/16
=4.38
30 12 2.50
70 16 4.38
80 20 4.00
16
82 23 3.57
L
L
30
IfIfthe
your
MPnext
of the
grade
nextisworker
say 70is> say
your70
test
>
If MP (70) > AP (60), then the Average
per
average
worker
so
average
far
say
so
60,
far
then
say
your
60,
test
then
Product increases.
the
per worker
average (AP) increases.
Average
increases.
If MP (50) < AP (60), then the AP will
Ifdecrease.
MP
of the
next
say 50
<
Ifthe
your
next
grade
is worker
say 50 is
< your
test
worker
so far
say
60,test
then
per
If
MP
= AP,
then
AP
isyour
not
average
soaverage
far
saythe
60,
then
the
per worker
average (AP)itdecreases.
increasing
or decreasing:
is at the
Average
decreases.
maximum
point.
If
your
next
grade
60 = your
test60 = per
If the MP of the
nextisworker
is say
average
so far 60,
then
worker
average
so far
sayyour
60, test
thenAverage
the per
stays the
same(AP)
.
stays the same.
worker
average
31
32
THE AP AND MP
TP
Changes concavity
MP,AP
MP is max
AP is max
MP
AP
L
33
MP and AP
Suppose that 8 workers produce a total of 35 units
9 workers produce a total of 45 units
MP AP
10 Marginal product of 9th worker = 10
5 AP of 9 workers = 45/9=5
4.4
9
8
AP
MP = 5.9
MP AP
5.9
AP = MP=5.9
5. 5.9
9
AP remains
same
AP
MP
01/04/2014
34
MP and AP
MP AP
70
01/04/2014
35
Relationship between MP
and AP
MP = AP, AP doesnt
change and
AP is max
MP above AP
60
MP below AP
MP
AP
constant
increasing
decreasing
= f(x),
dy/dx
The slope of this line is y/x1 and corresponds to the values of y and x1
for the production function.
If the point selected on the function is for some value for x1 called
x1*, then the APP at x1* is y/x1*.
Figure 2.3 also illustrates the relationships that exist between the
APP and the MPP function for the neoclassical production function.
The MPP function first increases as the use of the input is increased,
until the inflection point of the underlying production function is
reached (point A). Here the MPP function reaches its maximum.
After this point, MPP declines, reaches zero when output is
maximum (point C), and then turns negative.
Stage I: APP
increasing, MPP>APP,
TPP increasing
Figure.
Graphical illustration of a production function
48
Stage
I:
Stage
Stage
Stages of Production
49
MARGINAL PHYSICAL
PRODUCT
AVERAGE
PHYSICAL
PRODUCT
STARTS
DIMINISHING
BECOMES NEGATIVE
CONTINUES TO
DECLINE
A Single-Input Production
Elasticity