Short-run production relationship
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Short- Run Production Relationship
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Transcript of Short-run production relationship
Short- Run Production Relationship
Short- Run Production Relationship
refers to the time frame in which the input of one or more productive agents is fixed.
Three Important Terms
Total Product(TP)- is the total quantity , or output, of a particular good produced.
- amount of output produced in physical units such as bags of fertilizer, bottles of vinegar or pair of shoes or slippers.
Marginal Product (MP) is the extra output or added product associated with adding a unit of a variable resource.
Marginal product = change in total
product change in
quantity of variable inputs
Average product (AP)- output per unit of resources employed.
Average= total product_____
quantity of variable inputs
SOAP MANUFACTURERNumber of workers
Total Output per day
Average product
Marginal product
1 50 bars 50 bars
2 125 62.5 75
3 220 73.3 95
4 320 80 100
5 410 82 90
6 490 81.6 80
7 560 80 70
8 610 76.2 50
9 640 71 30
10 630 63 -10
LAW OF DIMINISHING RETURNS
as we add more units of a variable input to
fixed amounts of capital, the change in total output will at first rise and then fall.
Diminishing returns to labor occurs when marginal product of labor starts to fall. This means that total output will be increasing at a decreasing rate.
Relationship between MP and AP
1.When MP lies above AP, AP rises.
2. When MP lies below AP, AP falls.
3.MP intersects AP at its maximum value
4.When MP crosses the X-axis, it
signifies a move from diminishing marginal returns to negative marginal returns.
