Inference for Proportions One Sample. Confidence Intervals One Sample Proportions.
The Law of Variable Proportions (Behind the Supply Curve, Part I)
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Transcript of The Law of Variable Proportions (Behind the Supply Curve, Part I)
![Page 1: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/1.jpg)
The Law of Variable Proportions
(Behind the Supply Curve, Part I)
![Page 2: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/2.jpg)
Introduction
• When producing an economic product, the supplier must decide how much of each input to use:– Land– Labor– Capital
• In particular, the supplier must examine the relation between input and output.
![Page 3: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/3.jpg)
The Law of Variable Proportions
• Is the answer to the question: How will total output change when all inputs except one are fixed? (Answer to be provided later)
• Two ways to illustrate the answer:– Production schedule (chart)– Production function (graph)
• Usually, as in this example, labor is the variable input; all other variables are held constant.
![Page 4: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/4.jpg)
Key Concept: Marginal Product
• Marginal product is the amount that total output increases by adding one more unit of an input.
• Marginal product is calculated by subtracting the most recent total product (# of units produced) from the new total product.
![Page 5: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/5.jpg)
Production Schedule Using Varying Amounts of Labor
Numberof
Workers
TotalProduct
(In Units)
MarginalProduct
(In Units)
012345
0144275
112150
01428333738
Stage I(Increasing
Returns)
678
180203216
302313
Stage II(Diminishing
Returns)
910
207190
-9-17
Stage III(Negative Returns)
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Production Function Using Variable Amounts of Labor
0
50
100
150
200
250
1 2 3 4 5 6 7 8 9 10
Variable Input (Number of Workers)
To
tal
Pro
du
cti
on
(In
Un
its
)
Series1
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Conclusions
• While adding units of an input (labor), the marginal product goes through three stages:
• Stage I (Increasing returns): marginal product increases throughout.– This means that every additional unit
increases productivity as well as total output.– This is shown on the graph by an increasing
slope.
![Page 8: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/8.jpg)
Conclusions, cont.
• Stage II (diminishing returns): marginal product decreases throughout.– This means that every additional unit decreases
productivity, though total output still increases.– This is shown on the graph by a decreasing positive
slope.• Stage III (negative returns): marginal product is
negative throughout.– This means that each additional unit actually
decreases total output.• a waste of money and resources.
– This is shown on the graph by a negative slope.
![Page 9: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/9.jpg)
Conclusions, cont.
• The greatest productivity is at the end of Stage I.
• The greatest output is at the end of Stage II.
• Therefore, Stage II is ideal, because there is a balance between productivity and total output.
![Page 10: The Law of Variable Proportions (Behind the Supply Curve, Part I)](https://reader035.fdocuments.us/reader035/viewer/2022071806/56649f505503460f94c72b0f/html5/thumbnails/10.jpg)
Summary
• The Law of Variable Proportions states that while varying only one input, output will go through three stages:– Increasing returns– Diminishing returns (ideal)– Negative returns