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:

Related Questions

Given the following information for Mary's taco shop (TP, AP, and MP are measured in tacos):

Labor (L)	Total Product (tacos) (TP)	Average Product (tacos) (AP)	Marginal Product (tacos) (MP)
0	0	--	--
1			20
2		25
3			50
4	150
5		36
6	200
7		30
8	210

a) Fill in the blanks above. (Round each answer to the nearest taco)

Please note there are no numbers for MP and AP when output is zero tacos.

b) Define the law of diminishing marginal returns.

c) At which worker (labor) does diminishing returns start? Please explain the reasoning behind your answer.

d) If each taco could be sold for $4 per taco, and each worker is paid $70 per day then, assuming that labor is the only cost of production, how many workers should Mary hire in order to maximize profits? Please explain the reasoning behind your answer.

lilacmacaw694

Below is a table showing the production numbers for a chair factory (where the production numbers are based on chairs being produced per day).

Workers	Total Product (TP)	Average Product (AP)	Marginal Product (MP)	Marginal Revenue Product (MRP)
0	0	-	-	-
1	10
2		15
3			40
4		35
5	190
6			30
7	240
8	250
9			5

a) Fill in the missing numbers for the TP, AP, and MP columns (round to the nearest chair)

b) In one sentence explain what the AP of 4 workers being 35 tells us.

c) In one sentence explain what your answer for MP of the 4^th worker tells us.

d) Given the fact that each chair produced in our factory can be sold at the market price of $10 per chair, fill in the MRP column (round to the nearest dollar).

e) In one sentence explain what your answer for MRP for the 4^th worker tells us.

f) If the market wage for workers doing manufacturing work (such as chair production) is $180 per day, determine the amount of workers this firm should hire to maximize its profit.

Explain your answer using MRP.

lavenderreindeer626

Below is a table showing the production numbers for a chair factory (where the production numbers are based on chairs being produced per day).

Workers	Total Product (TP)	Average Product (AP)	Marginal Product (MP)	Marginal Revenue Product (MRP)
0	0	-	-	-
1	10
2		15
3			40
4		35
5	190
6			30
7	240
8	250
9			5

a) Fill in the missing numbers for the TP, AP and MP columns (round to the nearest chair)

b) In one sentence explain what the AP of 4 workers being 35 tells us.

c) In one sentence explain what your answer for MP of the 4^th worker tells us.

d) Given the fact that each chair produced in our factory can be sold at the market price of $10 per chair, fill in the MRP column (round to the nearest dollar).

e) In one sentence explain what your answer for MRP for the 4^th worker tells us.

f) If the market wage for workers doing manufacturing work (such as chair production) is $180 per day, determine the number of workers this firm should hire to maximize its profit.

Explain your answer using MRP.

copperbee33

ECON 1B03 Lecture Notes - Average Variable Cost, Diminishing Returns, Marginal Product

ECON 1B03 Full Course Notes

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