Average product is the output per worker

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Presentation transcript:

Average product is the output per worker A Production Table # of workers Total Output Marginal Product Average Product 4 6 7 5 3 1 -2 -5 --- 2 10 17 5.7 23 5.8 28 5.6 31 5.2 32 4.6 8 4.0 9 30 3.3 25 2.5 Average product is the output per worker Marginal product is the additional output that will be forthcoming from an additional worker, other inputs constant

Law of Diminishing Marginal Productivity Law of diminishing marginal productivity states as more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall # of workers Total Output Marginal Product Average Product 4 6 7 5 3 1 -2 -5 --- 2 10 17 5.7 23 5.8 28 5.6 31 5.2 32 4.6 8 4.0 9 30 3.3 25 2.5 Increasing marginal productivity Diminishing marginal productivity Diminishing Absolute productivity

Graphing a Production Function Q 32 26 20 14 8 2 A production function is the relationship between the inputs and the outputs TP Number of workers 1 2 3 4 5 6 7 8 9 10 Increasing marginal productivity Diminishing marginal productivity Diminishing Absolute productivity

Graphing Marginal and Average Productivity Q Then marginal productivity declines Eventually marginal productivity is negative Marginal productivity first increases 8 6 4 2 -2 -4 -6 AP Number of workers 1 2 3 4 5 6 7 8 9 10 MP Diminishing marginal productivity Diminishing Absolute productivity Increasing marginal productivity

Costs of Production Table Output FC ($) VC ($) TC ($) MC ($) AFC ($) AVC ($) ATC ($) 3 50 38 88 12 16.67 12.66 29.33 4 100 12.50 25.00 9 150 8 5.56 11.11 10 108 158 5.00 10.80 15.80 16 200 7 3.12 9.38 17 157 207 2.94 9.24 12.18 22 250 2.27 9.09 11.36 23 210 260 2.17 9.13 11.30 27 255 305 15 1.85 9.44 11.29 28 270 320 1.79 9.64 11.43 32 400 450 1.56 14.06

Graphing Total Cost Curves TC and VC curves increase as Q increases (TC = FC + VC) TC • $450 VC • 400 L • 158 • O FC curve is constant 108 • M FC 50 Q 10 32

Graphing Per Unit Output Cost Curves 30 20 10 MC, ATC, and AVC curves are U-shaped MC ATC AVC AFC curve decreases AFC Q 10 20 30

The Relationship Between Marginal Productivity and Marginal Costs Costs per unit MC AVC If marginal productivity is rising, marginal costs are falling Q Output per worker If average productivity is falling, average costs are rising AP of workers MP of workers Q

The Relationship Between Marginal Cost and Average Cost Costs per unit The marginal cost curve goes through the minimum point of both the ATC and AVC curves MC ATC AVC Q