CHAPTER 06

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Unformatted text preview: PHALL-82241 PINDYCK CHAPTER 06 page 4 of 12 FIGURE 6.1 Production with One Variable Input Output per month D 112 C Total Product B 60 A 0 1 2 3 4 5 6 7 8 9 10 Labor per Month (a) 30 Output per worker 20 per month E Average Product 10 Marginal Product 0 1 2 3 4 5 6 (b) 7 8 9 Labor per month The total product curve in (a) shows the output produced for different amounts of labor input. The average and marginal products in (b) can be obtained (using the data in Table 6.1) from the total product curve. At point A in (a), the marginal product is 20 because the tangent to the total product curve has a slope of 20. At point B in (a) the average product of labor is 20, which is the slope of the line from the origin to B. The average product of labor at point C in (a) is given by the slope of the line 0C. To the left of point E in (b), the marginal product is above the average product and the average is increasing; to the right of E, the marginal product is below the average product and the average is decreasing. As a result, E represents the point at which the average and marginal products are equal, when the average product reaches its maximum. Fig 06-01.EPS 10 PHALL-82241 PINDYCK CHAPTER 06 page 5 of 12 FIGURE 6.2 The Effect of Technological Improvement Output per time period C O3 100 B A O2 50 O1 0 1 2 3 4 5 6 7 8 9 10 Labor per time period Labor productivity (output per unit of labor) can increase if there are improvements in technology, even though any given production process exhibits diminishing returns to labor. As we move from point A on curve O1 to B on curve O2 to C on cur...
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This note was uploaded on 09/28/2011 for the course ECON 105 taught by Professor Prof.eco during the Spring '11 term at Indian School of Business.

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