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The document discusses key economic concepts related to production including fixed and variable factors, short-run and long-run periods, the law of diminishing marginal returns, and input-output relationships. It provides examples and challenges to illustrate these concepts, showing how total product, average product, and marginal product change with variable inputs. It finds that the law of diminishing marginal returns applies when marginal product eventually declines with increasing variable inputs to fixed factors.
The document discusses key economic concepts related to production including fixed and variable factors, short-run and long-run periods, the law of diminishing marginal returns, and input-output relationships. It provides examples and challenges to illustrate these concepts, showing how total product, average product, and marginal product change with variable inputs. It finds that the law of diminishing marginal returns applies when marginal product eventually declines with increasing variable inputs to fixed factors.
The document discusses key economic concepts related to production including fixed and variable factors, short-run and long-run periods, the law of diminishing marginal returns, and input-output relationships. It provides examples and challenges to illustrate these concepts, showing how total product, average product, and marginal product change with variable inputs. It finds that the law of diminishing marginal returns applies when marginal product eventually declines with increasing variable inputs to fixed factors.
Take this challenge Short run and long run The input-output relationship in the short run The law of diminishing marginal returns are factors whose employment ________ (decreases) as output increases (decreases). are factors whose employment ______________ when output changes. Fixed factors and variable factors Fixed factors factory buildings, land, machinery increases raw materials, labour, fuel and electricity remains constant Examples Variable factors Definition A firm can increase its output by employing more _____________ only. Short run and long run A period when there are both ___________ and _____________. fixed factors variable factors variable factors Short run Long run A period when all factors of production are _______. variable A firm can increase its output by increasing the use of _________. all factors Assume there are two factors only: capital (fixed) and labour (variable). Technology is constant. Input-output relationship in the short run 4 10 20 28 34 38 40 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour The total product (TP) of labour is the total output produced by ______ in a ____________, holding ______ constant. period of time labour capital Input-output relationship in the short run 4 10 20 28 34 38 40 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour The average product (AP) of labour measures the output per ___________, holding capital constant. unit of labour Average product (units) 4.00 5.00 6.67 7.00 6.80 6.33 5.71 5.00 4.33 3.70 Input-output relationship in the short run 4 10 20 28 34 38 40 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour The marginal product (MP) of labour measures the change in total product as a result of changing the employment of _______________, holding capital constant. Marginal product (units) MP of nth unit =_______________ _______________ TP of n units - TP of (n - 1) units MP ________ initially but ________ eventually. increases decreases labour by one unit 4 6 10 8 6 4 2 0 -1 -2
4 6 10 8 6 4 2 0 -1 -2
The law of diminishing marginal returns As more _____________ are added to a given quantity of fixed factors, marginal product eventually _____. variable factors drops Output Variable factor MP Why do diminishing marginal returns occur ? When more workers are added to a given amount of fixed factors, the fixed factors are ________________; so MP rises initially. more fully utilised Later, when more and more workers are added, there are eventually too many _______ relative to the amount of fixed factors. workers Why do diminishing marginal returns occur ? When more workers are added to a given amount of fixed factors, the fixed factors are ________________; so MP rises initially. more fully utilised Efficiency will ______, leading to ______________. decline diminishing MP Take this challenge 1 Can you classify these items in the boutique into fixed and variable factors: (1) the shop; (2) the salespersons and (3) electricity? The shop: _____________ as the size of it remains unchanged even if more clothes are sold. fixed factor The salespersons: ______________ as more of them are needed to provide services to more customers. variable factor Electricity: ______________ as more electricity is used along with longer business hours. variable factor Take this challenge 1 Take this challenge 2 Find the total product and average product schedule of our workers from the following data: MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 Units of tools 4 4 4 4 4 4 4 The total product of n units = _________________________________________ _________________________________________ MP of the 1 st unit + MP of the 2 nd unit + + MP of the nth unit TP 40 86 136 180 216 242 256 Take this challenge 2 MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 Units of tools 4 4 4 4 4 4 4 The average product of n units = _______________________ AP = TP / units of labour AP 40 43 45.3 45 43.2 40.3 36.6 Take this challenge 2 TP 40 86 136 180 216 242 256 MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 Units of tools 4 4 4 4 4 4 4 Does the law of diminishing marginal returns apply to the factory? Take this challenge 2 Yes / No, as more workers are added to a fixed quantity of tools, marginal product eventually increases / drops. AP 40 43 45.3 45 43.2 40.3 36.6 TP 40 86 136 180 216 242 256 MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 Units of tools 4 4 4 4 4 4 4 Take this challenge 3 The following table shows the marginal product schedule of factory A: Which economic law does not hold as shown by the above data? Explain. _____________________________________ as the MP eventually is increasing. The law of diminishing marginal returns MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 Units of machines 7 7 7 7 7 7 7