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    if marginal product is 4 units and average product is 8 units, the next worker will cause

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    ECON 150: Microeconomics

    Section 01: ProductionProduction Functions

    We are now going to focus on the what is behind the supply curve. Profits equal total revenue minus total costs. Total revenue is equal to price times quantity and we examined their relationship in the elasticity section. This section focuses on the second part of the equation, costs.  In order to produce, we must employ resources, i.e., land, labor, capital, and entrepreneurship. What happens to output as more resources are employed?

    We can demonstrate the impact of adding more of a variable resource, say labor, to a fixed amount of capital and see what happens to output. For demonstration purposes in economics, we often make widgets, which is really any hypothetical manufactured device. Our widget will be made taking a quarter sheet of paper, folding it in half twice then stapling it and writing the letter W on it.  If you have a big family, you can do this as a Family Home Evening activity; otherwise you can just read along to see the results.  The inputs are a stack of quarter sheets of paper, one stapler, one pen, and a 2’ x 3’ sheet of poster board which represents your factory wherein all production must take place. Each round is a certain amount of time, say 40 seconds.

    What will be the output level of widgets as more labor is added?  With zero workers, nothing gets produced. With one worker, the worker must fold the paper, staple it, and write the W. Doing all of these tasks by himself, our first worker is able to produce three widgets.

    Marginal ProductTotal product is simply the output that is produced by all of the employed workers. Marginal product is the additional output that is generated by an additional worker. With a second worker, production increases by 5 and with the third worker it increases by 6. When these workers are added, the marginal product increases. What factors would cause this?  As more workers are added, they are able to divide the respective tasks and specialize. When the marginal product is increasing, the total product increases at an increasing rate. If a business is going to produce, they would not want to produce when marginal product is increasing, since by adding an additional worker the cost per unit of output would be declining.

    In The Wealth of Nations, Adam Smith wrote about the advantages of the division of labor using the example of a pin maker.  He pointed out that an individual not educated to the business could scarce make one pin a day and certainly not more than twenty. But the business of pin making is divided up into a number of peculiar trades and each worker specializes in that trade. “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.” As a result, these ten people are able to produce upwards of forty-eight thousand pins in a day.

    Reference: http://www.econlib.org/library/Smith/smWN1.html#B.I,%20Ch.1,%20Of%20the%20Division%20of%20Labor

    Diminishing Returns

    At some point, diminishing marginal returns sets in and the marginal product of another worker declines. As more workers are added, the capital, i.e., factory size, stapler and pen become more scarce. The law of diminishing marginal returns states that as successive amounts of the variable input, i.e., labor,  are added to a fixed amount of other resources, i.e., capital,  in the production process the marginal contribution of the additional variable resource will eventually decline.  As the marginal product begins to fall but remains positive, total product continues to increase but at a decreasing rate. As long as the marginal product of a worker is greater than the average product, computed by taking the total product divided by the number of workers, the average product will rise. For students, it is often easiest to remember when you think about your grade point average. If your g.p.a. for this semester, i.e., your marginal g.p.a.,  is greater than your cumulative g.p.a., i.e., your average g.p.a., then your average g.p.a. will rise. But if your g.p.a. this semester is lower than your cumulative g.p.a., then your cumulative g.p.a. will fall. Thus the marginal product will always intersect the average product at the maximum average product.

    There may even come a point where adding an additional worker makes things so crowded that total product begins to fall. In this case the marginal product is negative.  In our example, adding the ninth and tenth worker yields lower output than what was produced with only eight workers.

    Source : courses.byui.edu

    If marginal product is 8 units and average product is 4 units, the next worker will cause

    MICROECONOMICS Jordan B. asked • 02/27/15

    If marginal product is 8 units and average product is 4 units, the next worker will cause

    a) marginal product to decrease.

    b) average product to increase by 4 units.

    c) marginal product to decrease by 4 units.

    d) marginal product to decrease by 2 units and average product to increase by 2 units.

    e) average product to increase.

    Follow 2 Add comment More

    1 Expert Answer

    By:

    Dennis C. answered • 02/27/15

    TUTOR New to Wyzant

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    Hi Jordan,

    Average product relates to individual worker production ie how many widgets each worker can produce per hour.

    However,  marginal product relates to the impact to the business from a worker being added. For, instance another employee may produce at the average product but still requires additional resources to perform the work. Other employees may produce more or less causing the average product to differ gold or bad.

    In this situation holding all other variables constant the marginal product would decrease by 4 (the amount of current average production). This recognizes the impact of another employee but the average production remains constant until the work of the added worker can be measured.

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    Production Flashcards

    Start studying Production. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

    Production

    20 studiers in the last day

    Scenario 13-15

    Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost.

    Refer to Scenario 13-15. Joan's production function exhibits

    a.

    increasing marginal product.

    Correctb.

    decreasing marginal product.

    c.

    constant marginal product.

    d.

    Any of the above could be correct.

    Click card to see definition 👆

    b.

    decreasing marginal product.

    Click again to see term 👆

    Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker?

    Answers: a. $1.50 b. $10 c. $5 d. $2.50

    Click card to see definition 👆

    d. $2.50

    Click again to see term 👆

    1/4 Created by mitchell_stewart7

    Terms in this set (4)

    Scenario 13-15

    Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost.

    Refer to Scenario 13-15. Joan's production function exhibits

    a.

    increasing marginal product.

    Correctb.

    decreasing marginal product.

    c.

    constant marginal product.

    d.

    Any of the above could be correct.

    b.

    decreasing marginal product.

    Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker?

    Answers: a. $1.50 b. $10 c. $5 d. $2.50 d. $2.50 Scenario 13-6

    Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.

    Refer to Scenario 13-6. What is the total opportunity cost of the day that Farmer Ziva spent in the field planting lettuce?

    Answers: a. $300 b. $130 c. $250 d. $380 d. $380

    If marginal product is 4 units and average product is 8 units, the next worker will cause

    Answers:

    a. marginal product to increase.

    b. average product to increase by 4 units.

    c. marginal product to become negative.

    d. marginal product to increase by 2 units and average product to decrease by 2 units.

    e. average product to decrease

    e.

    average product to decrease

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