ECN 102 Lecture Notes - Lecture 13: Diminishing Returns, Isoquant
Document Summary
Consider the following concepts: total physical product (t. p. p): refers to the output produced given any level of input. It is abbreviations as q: average physical product (a. p. p): refers to the output per unit of input given by: From the m. p. p, the total physical product increase first at an increasing rate up to about 4 units of labour, after that the t. p. p continuous to increase but at a decreasing rate as depicted by the m. p. p. At the maximum point of the t. p. p the m. p. p turn zero. Thereafter the total falls and the m. p. p turns negative. The a. p. p and the m. p. p are both rising at first with the m. p. p higher than the a. p. p the m. p. p reaches a maximum earlier and when it"s falling; it cuts the a. p. p on its maximum point. When they are both fall the a. p. p, is higher than the m. p. p. The relationship between the three is best represented in a diagram. Referred to as the stage of increasing returns.
