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A PLANT
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Is
the factory (space) where production takes place and All the equipment necessary to produce The plant includes everything needed to produce, except workers and raw materials.
2
Plant size is fixed, labor is variable Both Plant size and labor are variable
3
Plant size is Short Run fixed, labor is variable To increase Short Run production firms increase Labor but cant expand their plant 4 Firms produce in the short run
Plant size is Long Run variable, labor is variable How can To increase the plant Long Run production firms size be increase Labor variable? and expand their plant. 5 Firms plan in the long run
Total
Represents
the relationship between the number of workers (L) and the TOTAL number of units of output produced (Q) holding all other factors of production (the plant size) constant.
For a coffee shop, output would be measured in number of coffee cups a day For a steel mill, output would be measured in tons of steel produced a day
The Total Product Curve must show that: 1. The more workers are hired the more output would be produced.
INCREASING FUNCTION.
8
Constant Slope
25
20
15
5 5 5
10 5
5
5 0 1
Number of Workers hired
75 25 50
20
Increasing Slope
30
15 15 5
5
ALL workers become more productive as they concentrate on doing only one task
10
75 70 60 45
10 15
Decreasing Slope
ALL workers become LESS productive as the plant gets crowded and equipment breaks down often
20
25 25
Increasing
5 10 15
Decreasing
20
75
25
50
20
30 15 5 1
15 10 5
10
-5
-10 -15
75
25
50
20
30 15 5
15 10
5
2
10 11 12
ALL THREE FUNCTIONS ARE INCREASING. Q Same size steps Larger steps Constant Slope Increasing Slope
Decreasing Slope
As L increases, Q increases by decreasing amounts L
15
In other words: Does each additional worker add the SAME? MORE? Or LESS to output that the previous worker?
In
the short run, the plant size is fixed. Adding more workers is favorable to production at first, as specialization increases productivity. Eventually, adding more and more workers to a FIXED PLANT size results in decreases in productivity due to crowded conditions:
Workers will have to SHARE EXISTING EQUIPMENT Equipment will break down more often.
16
As more of a variable input (labor) is added to a fixed input (plant), additions to output eventually slow down.
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If more of the variable input (labor) continues to be added to a fixed input (plant), additions to output continue to decline until eventually output decreases
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19
20
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MP = 30
30 units Rise DQ
Slope = 30/1 = 30
TP(Q)
The 10th worker adds 30 units to production
Run DL
10
L (Workers hired)
MP = 10
TP
160 units
30
130 units
Rise
Run
3
9 12
MP
25 27 23 2 -4
MP = 12 MP = 8
20
5 12
MP = 5
8
1 2 3 4 5 1st 2nd 3rd 4th 5th
1 2 3
MP = 2
5 4
MP = -4
MP = 12
20
MP = 8 MP = 5 MP = 2
1 2 3 4 5
MP = -4
MP = 12
20
MP = 8 MP = 5 MP = 2
1 2 3 4 5
MP = -4
L 0 1 2 3 4 5
MP 5 10 15 20 25
L 0 1 2 3 4 5
MP
6 30 7 35 8 40 9 45 10this table: 50 given In youre the Product and 11 Marginal 55 you must use it to calculate Product. 12 the Total 60
6 285 7 315 8 340 9 360 10In this table: youre given 375 the 11 Total Product and you 385 must use it to calculate the 12 Marginal Product. 390
27
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150 units
If we draw a line (a ray) from the origin to a point on the production function
Rise Q
AP = Q/L AP = 150/10 = 15
Run L
10
AP = Q/L What happens to RAY L AP = SLOPE OFthe AP asFROM ORIGIN What happens
increases?
30
20
5
1012 16 20 23
AP AP Increases up to 16 workers
70/16 =4.38
16
IfIfthe MP of the next worker is say 70 > your next grade is say 70 > your test If MP (70) > AP (60), then the Average per worker average so far say 60, test average so far say 60, then your then Product increases. the per worker average (AP) increases. Average increases. If MP (50) < AP (60), then the AP will Ifdecrease. the next worker is your50 < Ifthe MP of grade is say 50 < say test your next If MP = AP, then the AP is not60, then per worker average 60, far say increasing average so far say so then your test or per worker it is at the decreasing:average (AP) decreases. Average decreases. the maximum point. your next grade is 60 = your test IfIfthe MP of the next worker is say 60 = per average so far so then your then the per worker average 60,far say 60, test Average 31 stays the same(AP) stays the same. . worker average
THE AP AND MP
TP Slope of ray is max
MP,AP
MP
32
MP AND AP
Suppose that 8 workers produce a total of 35 units
So when the 9th worker is hired 9 workers produce a total of 45 units
MP AP
5
4.4
MP
AP
33
MP AND AP
Suppose that 12 workers produce a total of 71 units
So when the 13th worker is hired 13 workers produce a total of 76.9 units
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5.9
AP remains same
AP
MP
70
MP above AP
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60
60
MP below AP AP
MP
35
L 0 1 2 2.5 3 4 5 6 7 8 9
Q 0 10 25 31.3 35 40 42 42 35 25 10
MP
10 15 12.5 10 5 2 0 -7 -10 -15
AP
10.0 12.5 12.5 11.7 10.0 8.4 7.0 5.0 3.1 1.1
MP= previous AP
AP doesnt change
36
L 0
MP
AP
L 0 1 2 3 4 5 6 7 8
MP
AP
1 2 3 4 5 6 7 8 9 10 11 12
5 10 15 20 25 30 35 40 45 In this table: youre given 50 the Marginal Product and you must use it to calculate 55 the Total Product. 60
9
10 11
360
375 385
12
390
AP
Here you have the Total Product Q and you must calculate the MP and AP
60 70
80
153 118
38
Table 1
60 18 70 -35
80 -80
Table 2
Table 2
5 20 45 40 25 18 -35 -80
Table 2
L
0 10 20 30 40
Q
0 5 25 70 110
DQ
5 20 45 40
DL
10 10 10 10
MP
0.5 2 4.5 4
50
60 70 80
135
153 118 38
25
18 -35 -80
10
10 10 10
2.5
1.8 -3.5 -8
DQ
DL
MP
MP *10
0 10 20 30 40
50 60 70 80
0 5 25 70 110
135 153 118 38
0 5 20 45 40
25 18 -35 -80
10 10 10 10
10 10 10 10
0.5 2 4.5 4
2.5 1.8 -3.5 -8
5 20 45 40
25 18 -35 -80
5 25 70 110
135 153 118 38
MP 5 5 5
TP(Q)
AP
0
1 2 3
4
5 6 7
5
5 5 5
8
9 10 11
5
5 5 5
44
12
MP 5 10 15
TP (Q)
AP
0
1 2 3
4
5 6 7
20
25 30 35
8
9 10 11
40
45 50 55
45
12
60
MP 60 55 50
TP (Q)
AP
0
1 2 3
4
5 6 7
45
40 35 30
8
9 10 11
25
20 15 10
46
12
MP 5 10 15
TP(Q)
AP
0
1 2 3
4
5 6 7
20
17 15 13
8
9 10 11
12
10 8 6
47
12
MP=AP MP AP AP MP MP
MP
AP
MP
AP
AP
AP
G MP
MP
MP
II
MP
III
MP
MP
IV