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5
Classification of Inputs
Inputs can also be classified depending on whether
amount of input used changes with production level
6
Production Function
8
Short-Run Technology Constraint
Product Schedules
Total product is the total output produced in a given
period.
The marginal product of labor is the change in total
product that results from a one-unit increase in the
quantity of labor employed, with all other inputs remaining
the same.
The average product of labor is equal to total product
divided by the quantity of labor employed.
Table 10.1 on page 221 shows a firm’s product schedules.
Total, Average, & Marginal
Products of Labor,
Number of Total product (Q) Average product Marginal product
workers (L) (AP=Q/L) (MP=∆Q/∆L)
0 0 -- --
1 52 52 52
2 112 56 60
3 170 56.7 58
4 220 55 50
5 258 51.6 38
6 286 47.7 28
7 304 43.4 18
8 314 39.3 10
9 318 35.3 4
10 314 31.4 -4
8-11
Short-Run
Product Curves
Product curves are graphs of the three product concepts
that show how total product, marginal product, and
average product change as the quantity of labor employed
changes.
Total, Average, & Marginal
Products of Labor,
Number of Total product (Q) Average product Marginal product
workers (L) (AP=Q/L) (MP=∆Q/∆L)
0 0 -- --
1 2
2 7
3 10
4 12
5 13
6 13
7 10
8-13
Total Product Curve
Figure 10.1 shows a total
product curve.
The total product curve
shows how total product
changes with the quantity
of labor employed.
Short-Run Technology Constraint
Total Cost
A firm’s total cost (TC) is the cost of all resources used.
Total fixed cost (TFC) is the cost of the firm’s fixed
inputs. Fixed costs do not change with output.
Total variable cost (TVC) is the cost of the firm’s variable
inputs. Variable costs do change with output.
Total cost equals total fixed cost plus total variable cost.
That is:
TC = TFC + TVC
Short-Run Total Cost Schedules (T
Output (Q) Total fixed cost Total variable cost Total Cost
(TFC) (TVC) (TC=TFC+TVC)
0 $6,000 $ 0 $ 6,000
100 6,000 4,000 10,000
200 6,000 6,000 12,000
300 6,000 9,000 15,000
400 6,000 14,000 20,000
500 6,000 22,000 28,000
600 6,000 34,000 40,000
8-32
Short-Run Cost
Marginal Cost
Marginal cost (MC) is the increase in total cost that
results from a one-unit increase in total product.
Over the output range with increasing marginal returns,
marginal cost falls as output increases.
Over the output range with diminishing marginal returns,
marginal cost rises as output increases.
Short-Run Cost
Average Cost
Average cost measures can be derived from each of the
total cost measures:
Average fixed cost (AFC) is total fixed cost per unit of
output.
Average variable cost (AVC) is total variable cost per unit
of output.
Average total cost (ATC) is total cost per unit of output.
8-40
Short-Run Cost
Technology
Technological change influences both the productivity
curves and the cost curves.
An increase in productivity shifts the average and marginal
product curves upward and the average and marginal cost
curves downward.
If a technological advance brings more capital and less
labor into use, fixed costs increase and variable costs
decrease.
In this case, average total cost increases at low output
levels and decreases at high output levels.
Short-Run Cost
In the long run, all inputs are variable and all costs are
variable.
The Production Function
The behavior of long-run cost depends upon the firm’s
production function, which is the relationship between the
maximum output attainable and the quantities of both
capital and labor.
Table 10.3 on page 230 shows a production function.
Long-Run Cost