EC211 · LESSON 06 / 08

6. Production and costs

A kitchen has one stove. Extra workers help at first, but eventually crowd the same workspace.

Understand

What is this lesson explaining?

A production function gives the maximum feasible output from specified inputs and technology. In the short run at least one input is fixed; in the long run all can change. These are not fixed numbers of months.

Average product APL = Q/L is output per worker. Marginal product MPL = ΔQ/ΔL is the output gained from extra labor. Total shop output is not the contribution of the last worker.

KEY MODEL

APL = Q/L

MPL = ΔQ/ΔL

LUnits of laborKCapital such as equipmentMPL / APLMarginal / average product of labor

See it on a graph

The graph is right here

Read the axes and original point first. Then change one value at a time and watch the curve or point move.

KEY MODEL

q=√(LK)=10

r=4

w=4

C=wL+rK

A=B : L=10, K=10

q = 10C₀C₁

Change wage: 4 money units per L

Wages change while target output stays fixed → cost-minimizing inputs L=10, K=10, C=80. The new isocost is tangent to the same isoquant; money cost is not held fixed. Both divisible inputs can adjust.

Blue dashed: original · Solid: new state · E₀/A: original point · E₁/B: new point. Coincident points share a label; use the explanation to read each result.

A curve shifts when one of its non-axis conditions changes. An adjusting point on a fixed curve is movement along that curve, not a shift of it.

Quick check

NO TYPING

A fourth worker raises output from 30 to 36 meals. What are MPL and APL at four workers?

Takeaway

Remember these two ideas

✓

With 0, 1, 2, 3 workers, output is 0, 12, 22, 30 meals. The first three marginal products are 12, 10, 8.

Common mix-upDiminishing marginal product is neither negative marginal product nor decreasing returns to scale.

Assumptions and sources

Technology and stoves are fixed, workers have equal quality in the model, and output is measured per day.

Pindyck & Rubinfeld, Microeconomics, 9th Global Edition, ch. 6, pp. 214, 218 (PDF 216, 220); original examples and questions.