ECON101 Lecture Notes - Lecture 39: Diminishing Returns, Marginal Product, One Unit

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purplemanatee917

8 Dec 2016

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Emmanuel Carvahlo

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Document Summary

The quantity of at least one factor of production will be constant since production is short. Two factors of production: fixed and variable. Concepts: total product (tp) overall output produced during a specified period of time by combining or mixing fixed and variable factors of production. Obtaining average product = (cid:2197)(cid:2202)(cid:2183) (cid:2198)(cid:2197)(cid:2186)(cid:2203)(cid:2185)(cid:2202) (cid:4666)(cid:4667) (cid:2183)(cid:2191)(cid:2183)(cid:2184)(cid:2187) (cid:2196)(cid:2198)(cid:2203)(cid:2202) (cid:2190)(cid:2183)(cid:2196)(cid:2189)(cid:2187) (cid:2191)(cid:2196) (cid:2169)= (cid:2190)(cid:2183)(cid:2196)(cid:2189)(cid:2187) (cid:2191)(cid:2196) (cid:2204)(cid:2183)(cid:2191)(cid:2183)(cid:2184)(cid:2187) (cid:2196)(cid:2198)(cid:2203)(cid:2202) When increasing quantities of variable input are employed in production eventually each additional unit of a variable adds less the total product (total output) than the previous unit. Eventually marginal product begins and continues to decline. After total product gets to max it start decreasing. Initially total product increases at an increasing rate (variable input productivity gains) Then increases at a decreasing rate (because of diminishing return) When marginal product becomes 0 it will cross the horizontal axis. Starts to decline and then continues to decline because of diminishing return.

Related Questions

Use the following information on a hypothetical short-run production function to answer questions A-C.

The price of labor is $20 per day.

Ten units of capital are used each day, regardless of output level.

The price of capital is $50 per unit.

(A). Calculate the marginal product (MP) and average variable product (AP) of each unit of labor input.
(B). Calculate total (TC), average total (ATC), average variable (AVC), and marginal costs (MC).
(C). Can you tell where diminishing marginal returns sets in?

Labor (L)	Output (Q)	MP	AP	TC	ATC	AVC	MC
5	120	--					--
6	140
7	155
8	165
9	168

harlequinotter496

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c