ECON 1150 7.3 PRODUCTION in the Short Run

What does marginal product (MP) show?

CHANGE IN TP/CHANGE IN L

The output level at which diminishing marginal returns begins occurs where _________?

Marginal product is at its maximum

What does average product (AP) show?

Output per worker (TP/L)

What does the AP curve show?

That as the amount of labour input increases, the AP of labour rises, reaches a maximum, and then eventually falls.

If the average product is 3 units and the marginal product is 3 units

The average product and marginal product will fall if the quantity of the factor increases.

Capacity level

The level of output that corresponds to the minimum short-run average total cost is often called the capacity of the firm. The capacity is the largest output that can be produced without encountering rising average costs per unit.

For given factor prices, when average product (AP) is at a maximum, AVC is at a _________

minimum

The law of diminishing returns states that if increasing amounts of a VARIABLE factor are applied to a given quantity of a FIXED factor​ (holding the level of technology​ constant), eventually a situation will be reached in which the MARGINAL product of the VARIABLE factor declines. The level of labour input at which marginal product reaches a maximum is called the point of diminishing marginal returns.

Yes

Marginal Product (MP)

The change in total product resulting from the use of one additional unit of labour.

Does each unit of labour add the SAME amount to total VARIABLE cost?

Yes

If the AVC is decreasing, the marginal cost is less than the AVERAGE TOTAL COST?

Yes

The marginal cost pulls down the average variable cost as long as marginal cost is less than average variable cost. If marginal cost exceeds average variable​ cost, the average variable cost is increasing.

Yes

When output per worker ​(AP​) is​ rising, the variable cost per unit of output ​(AVC​) is​ falling, and when output per worker ​(AP​) is​ falling, average variable cost ​(AVC​) is rising. AVC is at its minimum when AP reaches its maximum.

Yes

Will each additional worker (unit of labour) add the same amount to cost, but a different amount to output? Does each additional worker add the same amount to cost but a different amount to output?

Yes

If the AP and MP curves are plotted on a graph, the AP curve is rising as long as the MP curve lies ________ it. The AP curve is falling when the MP curve lies _______ it.

1. above 2. below

Law of diminishing marginal returns

As more of a variable factor is used in combination with given quantities of fixed factors, the marginal product of the variable factor will eventually decrease.