aps1 - Economics 102 Introductory Macroeconomics Spring...

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Economics 102 Introductory Macroeconomics - Spring 2005, Professor J. Wissink Problem Set 1 – ANSWERS 1. a) The Marginal Productivity of Labor (MP L ) is defined as Labor Output MP L = where the sign “ ” denotes change (i.e. y= y 1 -y 0 ). Following this definition the Marginal Productivity of Labor in the production of Rafts and in the production of Girders is given by the following table Number of Number of MP L Number of Number of MP L Hours Rafts Rafts Hours Girders Girders 0 0 0 0 10 1 0.10 10 15 1.50 20 2 0.10 20 28 1.30 30 3 0.10 30 39 1.10 40 4 0.10 40 48 0.90 50 5 0.10 50 56 0.80 60 6 0.10 60 61 0.50 70 7 0.10 70 65 0.40 80 8 0.10 80 67 0.20 b) The Law of Diminishing Returns does not apply in the production function of Rafts, because as labor increases the marginal productivity of labor stays constant. However, it does apply in the production of Girders. Diminishing returns “set in” after the 10 th hour of labor, because the additional 10 hours of labor add less to the total output compared to the previous 10 hours. c) Production Function of Rafts 0 1 2 3 4 5 6 7 8 9 0 10 20 30 40 50 60 70 80 Hours of Labor Number of Rafts
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Production Function of Girders 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 Hours of Labor Number of Girders d) The Production Possibilities Frontier (PPF) is generated by the following combination of output between rafts and girders.
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