Microeconomics Part 2 Copyright Texas Education Agency 2011

Marginal Product of Labor The change in output from hiring one more worker 2

Diminishing Marginal Returns A level of production in which product of labor decreases as

Marginal Costs The additional cost of producing one more unit 4 Copyright © Texas

Marginal Revenue The additional income from selling one more unit of a good 5

Profit Maximization Marginal Costs (MC) = Marginal Revenue (MR) 6 Copyright Texas Education Agency,

Law of Diminishing Returns A law of economics stating that, as the number of

Lets put it in action……. Law of Diminishing Marginal Returns Activity You are part

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Diminishing Marginal Returns A level of production in which product of labor decreases as the number of workers increases Increasing Marginal Returns A level of production in which the marginal product of labor increases as the number of workers increases 3 Copyright © Texas Education Agency, 2011. All rights reserved.

Law of Diminishing Returns A law of economics stating that, as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee. 7 Copyright Texas Education Agency, 2011. All rights reserved.

Lets put it in action……. Law of Diminishing Marginal Returns Activity You are part of the inputs required to generate a factory's short-run production function. Additional equipment used includes two buckets, a number of tennis balls and a spreadsheet to record results of the exercise. One student from each group will be the timekeeper and a second the output recorder. All other students that participate will be workers on the 'production line'. Students will transfer products from bucket to bucket in 30 sec intervals and output will be recorded at the end of every production period. Additional labor will be added to the production line for every new production period. When production is complete your group will complete the accompanying chart to show the relationship between Total Product / Average Product / Marginal Product. 8 Copyright Texas Education Agency, 2011. All rights reserved.