Class Notes (839,483)
Canada (511,363)
Economics (1,617)
ECON 1B03 (523)
Lecture

Econ 1B03 - Chapter 13 Part 2.docx

5 Pages
42 Views

Department
Economics
Course Code
ECON 1B03
Professor
Hannah Holmes

This preview shows pages 1 and half of page 2. Sign up to view the full 5 pages of the document.
Description
Econ 1B03 – Chapter 13  We often refer to diminishing MP (Marginal Product) as diminishing returns to an input  In our example, we have diminishing returns to labour  Now let’s graph Jerry’s production function: o  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: o o o MP = AP at maximum AP  Things to note: o TP is maximized when L = 50 o This means that MP = 0 when L = 50 o AP intersects MP at max AP  Most MP and AP curves are nice and smooth: o  Whenever MP is higher than AP, AP is necessarily increasing.  Whenever MP is less than AP, AP is decreasing  Also note, Jerry wouldn’t hire after the 50 worker because they lower his output  A firm goes from 4 to 5 workers. MP goes from 9 to 7; average production goes from 6 to 7. o AP is at a maximum. When AP = MP, AP is at maximum. TP is maximized when MP = 0. We don’t know where MP was maximized. Not enough info. Cost of Production  Of course, Jerry is concerned about his costs of production.  Costs of production may be divided into fixed costs and variable costs.  Fixed Costs: Costs are that do not vary with a change in output level. E.g. rent, loan payments  Variable costs: Costs that do vary with changes in output levels. E.g. labour costs, raw materials costs  Costs also depend on the time horizon 
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit