13.4 - Production and Costs
13.4 CC Q1 A farmer owns 50 bee hives. The farmer is able to produce 2,000 pounds of honey when he hires 2 workers. He is able to produce 4,000 pounds of honey when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? A) The farmer is able to produce 8,000 pounds of honey when he hires 4 workers. B) The farmer is able to produce 5,500 pounds of honey when he hires 4 workers. C) The farmer is able to produce 6,000 pounds of honey when he hires 4 workers. D) The farmer is able to produce 9,000 pounds of honey when he hires 4 workers.
B Correct. The marginal productivity of the third worker is 2,000 pounds (4,000 - 2,000 = 2,000). The fourth worker must increase total production by less than 2,000 pounds to illustrate diminishing marginal productivity, so the total production with 4 workers must be less than 6,000 pounds (4,000 + 2,000 = 6,000).
13.4 CC Q3 (L) (Q) (MP) 0 0 -- 1 150 2 300 3 425 4 525 A) 1 B) 2 C) 3 D) 4
C Correct. Worker 1 has a marginal productivity of 150 units (150 - 0 = 150), worker 2 has a marginal productivity of 150 units (300 - 150 = 150), and worker 3 has marginal productivity of 125 units (425 - 300 = 125). Because 125 is less than 150, diminishing marginal productivity begins with the third worker.
Variable costs are ___________, as we produce more output.
Changing
Fixed costs are __________, no matter how many units are produced.
Constant
Number of Workers: 0, 1, 2, 3, 4, 5, 6 Quantity of Labor: 0, 50, 90, 120, 140, 150, 155 What is the MP of the second and third workers?
MP of Worker 2 = 40 When the number of workers goes from 1 to 2, production increases from 50 to 90, so the marginal product of the second worker is 40. MP of Worker 3 = 30 When the number of workers goes from 2 to 3, production increases from 90 to 120, so the marginal product of the third worker is 30. MP of Labor: 50, 40, 30, 20, 10, 5
What does the slope of the production function measure?
MPL
Average Product of Labor (APL)
Shows how much of the output (Q) is produced per worker (L), holding all the other inputs constant (K)
The Production Function
Shows the relationship between the quantity of input (labor) used to produced a good, and the quantity of output (product) of that good Can be represented by a table, equation, or graph Number of workers goes along the x-axis Quantity of Output goes along the y-axis
Total-Cost Curve
Shows the relationship between the quantity of output produced and total cost of production Quantity produced on the horizontal axis & Total Cost on the vertical axis
13.4 CC Q2 (L) (Q) (MP) 0 0 -- 1 50 2 60 3 50 4 40 5 30 Refer to the table. What is total output when 1 worker is hired? A) 60 units B) 0 units C) 25 units D) 50 units
D Correct. The marginal product for worker 1 is 50 units. Worker 1 increases total output from 0 units to 50 units.
The following is an example of: As we add workers, the average worker has less space to work with and will be less productive.
Diminishing Marginal Product
We call the condition in which each additional unit of input leads to a smaller increase in output than the previous unit of input:
Diminishing Marginal Product
Diminishing Marginal Product
The marginal product of an input declines as the quantity of the input increases (other things equal)
Marginal Product (MP)
The marginal product of labor shows how much the output (△Q) increases as we hire one additional worker (△L), holding all the inputs constant The increase in the quantity of output obtained from one additional unit of that input
In a ____________________________, quantity produced is on the horizontal axis and total cost is on the vertical axis.
Total-Cost Curve
Marginal Product of Labor equals
(change in Q)/(change in L) MPL = (△Q)/(△L)
Average Product of Labor equals
(output)/(labor) APL = (Q/L)
13.4 CC Q5 Sami owns a cookie shop. Sami can bake 50 dozen cookies per day. She is considering hiring her husband Nevin to work for her. Nevin can bake 45 dozen cookies per day. What would be the total daily output of Sami's cookie shop if she hired her husband? A) 95 dozen cookies B)45 dozen cookies C) 47.5 dozen cookies D) 50 dozen cookies
A Correct. Total daily output would equal Sami's production (50 dozen cookies) plus Nevin's production (45 dozen cookies).
13.4 CC Q4 (L) (Q) (MP) 0 0 -- 1 50 2 60 3 50 4 40 5 30 Refer to the table. What is the total output when 3 workers are hired? A) 50 units B) 160 units C) 150 units D) 16.67 units
B
Total cost (TC) equals:
Fixed costs + Variable costs TC = (FC) + (VC)
Why does the slope of the production function get flatter with an increase in the number of workers?
High production means the firm is crowded with many workers. Too many workers leads to limited work space, and in turn, less productivity (AKA: diminishing marginal product). Therefore, the production function is relatively flat.
The increase in output that arises from an additional unit of input is the:
Marginal Product
The relationship between the quantity of inputs used to make a good and the quantity of output of that good is the:
Production Function
What two things should you compare when deciding whether or not to hire one additional worker?
The cost of paying one additional worker (wages) & the MPL Comparing the additional benefit versus the other cost of hiring one more worker helps entrepreneurs think at the margin and make rational decisions
Comparing the production function with the shape of the TC curve. In what way are they opposite sides of the same coin?
The total-cost curve gets steeper as production rises, whereas the production function gets flatter as production rises.
How effect does diminishing marginal product have on the total-cost curve?
The total-cost curve gets steeper as the quantity of output increases
Why does the slope of the TC Curve get steeper with an increase in the number of workers?
When there are too many workers, producing an additional unit of product 'X' requires a lot of additional labor and is very costly. Therefore, when the quantity produced is large, the total-cost curve is relatively steep.