Production and Costs Average and Marginal Product of

  • Slides: 13
Download presentation
Production and Costs

Production and Costs

Average and Marginal Product of Labor=Increase of Product when Employing an Additional Worker (≠

Average and Marginal Product of Labor=Increase of Product when Employing an Additional Worker (≠ marginal benefit) Average Product of Labor or Product per Worker=Total Product/Number of Workers

Total, Marginal and Average Products Labor Total Product Marginal Product Average Product 1 (worker)

Total, Marginal and Average Products Labor Total Product Marginal Product Average Product 1 (worker) 5 (dresses) 5 (d. added by 5 (d. p. w. ) additional worker) 2 3 4 5 6 7 12 21 28 33 36 37 7 9 7 5 3 1 6 7 7 6. 6 6 5. 3

TP Output per Worker Ga Sp ins of eci aliz atio n Output Total,

TP Output per Worker Ga Sp ins of eci aliz atio n Output Total, Marginal and Average Products Q M APL s L Number of Workers rn ng tu hi e is R in al im in D arg MPL L 0 L 1 Number of Workers

Average and Marginal Product Suppose that 5 bakers bake 500 cupcakes. The average product

Average and Marginal Product Suppose that 5 bakers bake 500 cupcakes. The average product of labor is 100 (500/5). A new baker is employed and total output goes up to 630 cupcakes. The marginal product of adding an additional worker is 130. The new average product of labor is 630/6=105. If the marginal product of labor is larger than 100, the average product of labor rises. If the marginal product of adding an additional worker is less than 100, the average product of labor falls. Then, the marginal product curve cross the average product curve when the average cost of labor is at the maximum.

Costs (5 machines $10 per machine, wage is $15 per worker) Labor 1 2

Costs (5 machines $10 per machine, wage is $15 per worker) Labor 1 2 3 4 5 6 7 Total Product 5 12 21 28 33 36 37 Variable Cost 15 30 45 60 75 90 105 Total Costs 65 80 95 110 125 140 155

Average Costs (per unit cost) AVC=VC/Q AC=TC/Q If labor is the only Variable Input:

Average Costs (per unit cost) AVC=VC/Q AC=TC/Q If labor is the only Variable Input: Variable Cost AVC=VC/Q=(PL*L)/Q=PL/(Q/L)=PL/APL Marginal Costs The increase in total cost when increasing production by 1 unit (not when increasing labor by 1 unit!). MC=PL*(1/MPL) One additional worker adds MPL to product. It is needed 1/MPL units of workers to produce one unit of the product.

Cost Curves Labor Product MPL APL VC TC AVC AC MC 1 5 5

Cost Curves Labor Product MPL APL VC TC AVC AC MC 1 5 5 5 15 65 3 13 3 (1/5)*15 2 3 12 21 7 9 6 7 30 45 80 95 2. 14 6. 6 4. 5 2. 14 1. 67 4 5 28 33 7 5 7 6. 6 60 75 110 2. 14 125 2. 27 3. 9 3. 7 2. 14 3 6 7 36 37 3 1 6 5. 3 90 140 2. 5 105 155 2. 84 3. 8 4. 1 5 15

$ Total and Variable Costs TC VC Output

$ Total and Variable Costs TC VC Output

MC=PL*(1/MPL) MC AC Output per Worker $ per unit of output Relationship Between Marginal

MC=PL*(1/MPL) MC AC Output per Worker $ per unit of output Relationship Between Marginal and Average Products and Costs MPL AVC APL AVC=PL/APL Q 0(L 0) Q 1(L 1) Output L 0 L 1 Number of Workers

Average and Marginal Cost Suppose the total cost of producing 5 units is $100.

Average and Marginal Cost Suppose the total cost of producing 5 units is $100. The average cost is $20. A new unit is produced and the total cost goes to $130. The marginal cost of producing an additional unit is $30. The new average cost is 130/6=25. If the marginal cost is larger than 20, the average cost rises. If the marginal cost of producing an additional unit is less than 20, the average cost falls. Then, the marginal cost cross the average cost curve when the average cost of labor is at the minimum.

$ Cost per unit of output Fixed Costs ATC FC AVC AFC Output

$ Cost per unit of output Fixed Costs ATC FC AVC AFC Output

Cost per Unit Short Run and Long Run ACSR Q* AC long run Output

Cost per Unit Short Run and Long Run ACSR Q* AC long run Output

Costs Variable costs costs of Fixed costs costsCosts Variable costs costs of Fixed costs costs
Marginal People Marginal man or marginal man theoryMarginal People Marginal man or marginal man theory
Chapter 14 Marginal Jobs Marginal Jobs n MarginalChapter 14 Marginal Jobs Marginal Jobs n Marginal
MARGINAL ANALYSIS MARGINAL COST V MARGINAL BENEFIT TakeMARGINAL ANALYSIS MARGINAL COST V MARGINAL BENEFIT Take
Marginal Returns Increasing marginal returns occur when marginalMarginal Returns Increasing marginal returns occur when marginal
Marginal Cost and Average Cost Marginal Cost RememberMarginal Cost and Average Cost Marginal Cost Remember
COST BENEFIT ANALYSIS MARGINAL BENEFITS AND MARGINAL COSTSCOST BENEFIT ANALYSIS MARGINAL BENEFITS AND MARGINAL COSTS
Supply NEXT Marginal Costs and Benefits Marginal costSupply NEXT Marginal Costs and Benefits Marginal cost
ECONOMICS Marginal Benefits Versus Marginal Costs 1 IECONOMICS Marginal Benefits Versus Marginal Costs 1 I
Costs of Production FACTORS OF PRODUCTION MARGINAL RETURNSCosts of Production FACTORS OF PRODUCTION MARGINAL RETURNS
PRODUCTION COSTS Definitions Short run costs costs thatPRODUCTION COSTS Definitions Short run costs costs that
Production Marginal Production Additional production output obtained fromProduction Marginal Production Additional production output obtained from