The Production Function and the Law of Diminishing Marginal Returns

Firms, Production and Supply.

Activity 2-6-1: Production Simulation Reflections

• Question 3: Using only one or two sentences, describe the relationship between inputs, marginal product and total product.

What you need to do.

• Explain the difference between fixed and variable costs.

• Describe the difference between the short-run and long-run.

• Compute the average and marginal product for a single input given data on total output at different input levels.

• Explain how total product, average product, and marginal product can be computed.

• Explain the relationship between total product, average product and marginal product curves.

• Explain the “Law of Diminishing Marginal Returns.”

• Explain the theory of production• Describe the Three stages of

production.

• Theory of production

• Law of variable proportions• Short-run• Long-run• Production function• Total product• Marginal product• Stages of production

• Increasing Returns• Diminishing Returns• Negative Returns

Law of Diminishing Marginal Returns.

• All other things remaining constant, if only one input is increased a point will be reached where each additional input produces less output than the previous input.

• Law of Diminishing Returns: After a certain point, when additional units of a variable input are added to a fixed input, the marginal product of each additional variable input is less than the previous input.

• Diminishing returns always apply in the short run, and in the short run every firm will face diminishing returns. This means that every firm finds it progressively more difficult to increase its output as it approaches capacity production.

Act. 2-6-1: Back Side

# of Workers Total Product

(TP)

Marginal Product

(MP)

Average Product

(AP)

1 1000 1000 1000

2 3000 2000 1500

3 5500 2500 1833

4 6500 1000 1625

5 7100 600 1420

6 7500 400 1250

7 7200 -300 1029

8 6800 -400 850

Act 2-6-1: Backside

The Production Function, Total Product and Marginal Product

Activity 2-6-2: A Closer Look.

Variable Inputs Total Product

(TP

Marginal Product(MP)

Average Product( AP)

0 0 0 0

1 10 10 10

2 25 15 12.5

3 37 12 12.3

4 47 10 11.75

5 55 8 11

6 60 5 10

7 63 3 9

8 63 0 7.9

9 62 -1 6.9

Act. 2-6-2: A Closer Look