Lecture 7

# Production one variable input production one variable

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Unformatted text preview: oduced for a given level of inputs, or firm operates efficiently Q = A*F(L,K) I. Production: One Variable Input Production: One Variable Input   We will begin looking at the short run when only one input can be varied   We assume capital is fixed and labor is variable   Output can only be increased by increasing labor   Must know how output changes as the amount of labor is changed (Table 6.1) Graphing Output and Labor input Production Function Production: One Variable Input   Q=F(L,K=fixed) Observations: 1.  2.  3.  When labor is zero, output is zero as well With additional workers, output (Q) increases up to 8 units of labor Beyond this point, output declines   Increasing labor can make better use of existing capital initially   After a point, more labor is not useful and can be counterproductive 120 100 80 60 40 20 0 0 1 2 3 4 5 6 7 8 9 10 Labor 2 Average product of Labor   We will study both MPL and APL   Average product of Labor - Output per unit of a particular product   the marginal product of labor (MPL)   Measures the productivity of a firm s labor in terms of how much, on average, each worker can produce   the average product of labor (APL)  Average production over a range of an input APL = Marginal Product of Labor Production: One Variable Input   Marginal Product of Labor – additional output produced when labor increases by one unit   Change in output divided by the change in labor, derivative of Q w.r.t. L MPL = Graphing Output and Labor input Production Function   We can graph the information in Table 6.1 to show   How output varies with changes in labor  Output is maximized at 112 units   Average and Marginal Products  Marginal Product is positive as long as total Q=F(L,K=fixed) MPL 120 100 MPL 80 Production: One Variable Input 60 40 output is increasing 20 0 0 1 2 3 4 5 Labor 6 7 8 9 10  Marginal Product crosses Average Product at its maximum 3 Production: One Variable Input Output per Worker • Left of E: MP > AP & AP is increasing • Right of E: MP < AP & AP is decreasing • At E: MP = AP & AP is at its maximum • At 8 units, MP is zero and output is at max 30 Marginal Product E 20 Average Product Marginal and Average Product   When marginal product is greater than the average product, the average product is increasing   When marginal product is less than the average product, the average product is...
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