ECON 1B03 Lecture Notes - Average Variable Cost, Diminishing Returns, Marginal Product
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ECON 1B03 Full Course Notes
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We often refer to diminishing mp (marginal product) as diminishing returns to an input. In our example, we have diminishing returns to labour. Maximum of the function occurs when the tangent is 0 (50, 180) Whenever marginal product is 0 you are maximizing total product(tp) Notice that tp is maximized when the slope of the tp function is 0. Since the slope of the tp function is mp. Tp is maximized when mp = 0. Also related to production is the concept of average product, ap = q/# of inputs. Ap tells us the quantity of output per input, in our case, jerry"s labour. Ap will also diminish at some point. Let"s calculate it: mp = ap at maximum ap. Things to note: tp is maximized when l = 50, this means that mp = 0 when l = 50, ap intersects mp at max ap. Most mp and ap curves are nice and smooth: