ECON 103 Lecture 2: Marginal Productivity
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27 Sep 2018
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Marginal productivity: marginal productivity is a concept that describes the change of output by adding an additional worker. In the short-run when other inputs like machinery or buildings are fixed, marginal productivity falls because variable inputs (labor) run out of other inputs with which to work. Marginal costs rise because of diminishing marginal productivity. In the long run, where no inputs are fixed, marginal productivity is constant or increasing. Therefore, the long-run supply curve is flat or downward sloping. To increase output, hire more workers; the first workers are very productive. However, when hiring new workers, they"re less productive because they have less to do, fewer space, and less tools. This leads to diminishing marginal productivity of labor (or any other variable input), Therefore, to get the same increases in output, you need to add even more workers. As a good manager, it is pertinent to create a spreadsheet of outputs and inputs.
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