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# Lec12 - Productivity Total Product 160 0 0 20 2 4 6 8 10 12...

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1 Factor Total Product Average Product Marginal Product 0 0 - 2 12 6.0 4 44 11.0 6 80 13.3 8 100 12.5 10 112 11.2 12 122 10.2 14 131 9.4 16 139 8.7 18 146 8.1 20 152 7.6 6.0 16.0 18.0 10.0 6.0 5.0 4.5 4.0 3.5 3.0 0 5 10 15 20 0 2 4 6 8 10 12 14 16 18 20 Factor Product MP AP Q/x D Q/ D x 0 40 80 120 160 0 2 4 6 8 10 12 14 16 18 20 Total Product TP x Q Productivity u law of diminishing returns u additional output from successive increases of one input will eventually diminish (other inputs held constant) Firm Behavior u profit maximization given cost data, production data, market information u profits = total revenue (TR ) - total costs (TC) u marginal revenue (MR) u additional revenue from sale of additional unit of output u MR = D TR/ D Q u marginal cost (MC) u additional cost of producing additional unit of output u MC = D TC/ D Q u D Profits/ D Q = D TR/ D Q - D TC/ D Q MR > MC Produce more MR < MC Produce less MR = MC Profits maximized = MR - MC u Competitive industry u market price determined where Q d =Q s u firm price taker u firm small relative to size of market u Revenue u can produce and sell all that it wants at market price MR = D TR/ D Q = D (pQ)/ D Q = p D Q/ D Q = p Competitive Firm = D (pQ)/ D Q = p D Q/ D Q = p

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