Consider a manufacturing firm operating a given scale of plant and some assembly

Question

Consider a manufacturing firm operating a given scale of plant and some assembly equipment. Assume that the only input that the firm can change the amount of that can be used during the time period considered is labor (L).Assume that the production function between Labor (L) and Total Product (Q) is as given in the first two columns of the table below.

Labor (L) Total Product (Q) Average Product(AP) Marginal Product (MP)

1 15 15

2 36 18 3

3 57 19 1

4 72 18 -1

5 75 15 -3

6 60 10 -5

7 21 3 -7

8 -48 -6 -9

9 -153 -17 -11

10 -300 -30 -13

Relationships Instructions.

Insert the answers in the spaces between the following questions.

1. The time period considered is the (long run, short run), where the scale of plant is considered to be the (fixed input, variable input) and labor is the (fixed input, variable input)

2. The boundary between Stages I and II for labor occurs for around _____ units of labor.

3. Total Product (Q) increases as more labor is used, but at a decreasing rate, beginning for around _____ units of labor.

4. When Total Product is increasing at a decreasing rate, Marginal Product (decreases, increases, remains constant) as labor usage increases.

5. Suppose 2 units of L are being used. For this amount of L, MP is (greater than, less than) AP. If the amount of L were to increase, the value of AP (increases, decreases, stays the same?) Explain why.

6. Suppose 4 units of L are being used. For this amount of L, MP is (greater than, less than) AP. If the amount of L were to increase, the value of AP (increases, decreases, stays the same?) Explain why.

7. AP is a maximum for around _____ units of labor.

8. MP begins to decrease at around _____ units of labor. Why?

Explanation / Answer

1. The time period considered is the short run, where the scale of plant is considered to be the fixed input and labor is the variable input.

2. The boundary between Stages I and II for labor occurs for around _3____ units of labor.

3. Total Product (Q) increases as more labor is used, but at a decreasing rate, beginning for around __4___ units of labor.

4. When Total Product is increasing at a decreasing rate, Marginal Product decreases as labor usage increases.

5. Suppose 2 units of L are being used. For this amount of L, MP is greater than AP. If the amount of L were to increase, the value of AP increases because as PP increases with increase of L, the TP also increases , and as TP increases more relative to the increasse in L, the AP also increases.

6. Suppose 4 units of L are being used. For this amount of L, MP is less than AP. If the amount of L were to increase, the value of AP decreases because as amount of labour will be increased, the marginal product of additional workers decreas and hence AP also decreases, since

AP = TP/L , and Increase in TP is relatively less as L increases , and AP decreases with Increase in L

7. AP is a maximum for around __3___ units of labor.

8. MP begins to decrease at around _4____ units of labor. Because since capital is fixed, and as labour is increased from 3 to 4 units, its Marginal product decreases from 21 to 15.

If you don't understand anything then comment, I'ill revert back on the same. :)

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