# The production function labour 1 2 3 4 5 marginal

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Unformatted text preview: Oven 3 Oven 4 Oven 4 10 13 15 16 10 15 18 20 21 13 18 22 24 25 15 21 24 26 27 Marginal product of capital decreasing Average Costs per Pizza Pizzas 4 10 13 15 16 20 25 1 oven \$12.50 \$7.50 \$7.69 \$8.33 \$9.38 ----2 ovens \$15.00 \$7.50 \$6.92 \$6.67 \$6.77 \$7.50 --3 ovens \$20.67 \$9.42 \$7.69 \$7.33 \$7.19 \$6.88 \$8.00 4 ovens \$26.67 \$11.67 \$9.36 \$8.33 \$8.07 \$7.29 \$7.50 Short-Run Costs of Four Different Plants 12.00 10.00 9.36 8.00 7.69 6.92 6.00 ATC1 ATC2 ATC3 ATC4 0 5 10 13 15 20 25 30 Long-Run Average Cost Curve 12.00 10.00 8.00 6.00 Least-cost plant is 1 Least-cost plant is 2 5 10 15 18 Least-cost plant is 3 20 LRAC curve Least-cost plant is 4 30 ATC1 ATC2 ATC3 ATC4 0 2425 Returns to Scale Returns to scale are the increases in output that result from increasing all inputs by the same percentage. Three possibilities: Constant returns to scale Increasing returns to scale Decreasing returns to scale Economies of Scale Labour 1 2 3 4 5 Marginal product of labour decreasing Output (pizza per day) 1 Oven 2 Oven 3 Oven 4 Oven 4 10 13 15 16 10 15 18 20 21 13 18 22 24 25 15 21 24 26 27 Ovens (number) 1 2 3 4 Marginal product of capital decreasing Long-Run Average Cost Curve Diseconomies Economies of scale of scale 12.00 10.00 8.00 6.00 Least-cost plant is 1 Least-cost plant is 2 0 5 10 15 18 Least-cost plant is 3 20 ATC1 ATC2 ATC3 ATC4 MES LRAC curve Least-cost plant is 4 30 2425 Short-Run Costs Q 0 1 2 3 4 25 4 2 4 3.67 TFC TVC TC MC AFC AVC ATC...
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