How Cost of rPoduction Affects Supply View chapter Understanding Profit with videos
see Review_22 part 1
Total Production
Total product of labor (TPL) measures total production
occurring as more workers
are added to a production process containing fixed
resources.
Marginal product of labor (MPL)
measures the change in the TPL which occurs
as more workers are
added to a production process containing fixed resources.
Average product of labor (APL)
measures the average production of all workers
as additional workers are
added to a production process containing fixed resources.
Stage 1
Increasing marginal returns to scale (getting bigger) with specialization.
Stage 2
Decrease marginal returns to scale because of fixed resources.
Stage 3 Negative marginal returns to scale because workers are in the way of
each other.
At low quantities MP is above AP so AP is rising. As MP starts to fall AP flattens but
continues to rise because MP is still higher. When MP drops below AP, AP immediately
begins to decrease indicating the intersection must be AP's highest point. At low quantities MC is below AVC so AVC is falling. As MC starts to rise AVC flattens but
continues to decrease because MC is still lower. When MC rises above AVC, AVC
immediately begins to rise indicating the intersection must be AVC's lowest point.
Cost Analysis 2 :
At low quantities MP is above AP so AP is rising. As MP starts to fall AP flattens,
but continues to rise because MP is still higher. When MP drops below AP, AP
mmediately begins to decrease indicating the intersection must be AP's highest point.
At low quantities MC is below AVC so AVC is falling. As MC starts to rise
AVC flattens,
but continues to decrease because MC is still lower. When MC rises above AVC,
AVC
immediately begins to rise indicating the
intersection must be AVC's lowest point.
Note that AV is the mirror image of AP and MC is the mirror image of MP.
Note: MPL should be plotted at the mid-point on the
x-axis. Note: AV is the mirror image of AP and MC is
the mirror image of MP.
