Econ 410: Micro Theory. Measuring Production. Recall from last time. Measuring Production. Slide 3. Slide 1. Friday, October 26 th, 2007.

Transcription

1 Slide 1 Slide Recall from last time Econ 4: Micro Theory Friday, October 26 th, 2007 per Month per Worker E D Marginal Product Labor per Month verage Product Labor per Month Slide 2 Slide 4 Recall from last time We can show the marginal and average products of an input both graphically and mathematically Mathematically The average product of labor Marginal product Graphically What is the relationship between the total, average, and marginal product curves? The relationship between these curves can also be shown geometrically The slope of a line from the origin to any point on the total product curve is eual to the average product at that point. TP /L 0 20 P is the slope of a line from the origin to a point on the total product curve MP P Labor

2 Slide 5 Slide 7 0 The relationship between these curves can also be shown geometrically The marginal product is the slope of the line tangent to any corresponding point on the total product curve TP Labor 0 15 P MP Labor When the use of a labor input is small and capital is fixed increases considerably as labor is added Workers can begin to specialize The marginal product of labor increases When the use of a labor input is large Some workers become less efficient Marginal product of labor decreases Example orn Farming Slide 6 Slide 8 In the graphs, we can see that as we increase labor the additional output produced declines Law of s the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease Why might this be true? The law of diminishing marginal returns typically applies only for the short run when one variable input is fixed What were the fixed inputs in the corn example? The variable inputs? What might be able to happen in the long run? This law usually assumes that the uality of the variable input is constant What if this assumption didn t hold?

3 Slide 9 Slide 11 Diminishing marginal returns and negative returns are not the same thing negative return indicates a decrease in total output If diminishing marginal returns occurs, additional output can be declining while total output is increasing Relationship to calculus The law of diminishing marginal returns also assumes a constant technology Fill in the missing columns of the table: Robot Hrs. Labor Hours MP L Slide Slide 12 What is the function for the marginal productivity of a labor hour? Solution: The marginal productivity of a labor hour is eual to the partial derivative of the production function with respect to L: K MPL. 2 L Solution: Robot Hrs. Labor Hours MP L

4 Slide 1 Slide 15 Labor Hours What might the marginal product of labor curve look like if we graphed it? re there diminishing marginal returns? O O 2 O 1 Labor per time period Moving from to to, labor productivity is increasing over time. ut, the marginal product of labor on a given curve is diminishing as the uantity of labor used increases. Technological progress causes the total product curve to shift upward Slide 14 Slide 16 What happens if technology increases in an industry? hanges in technology will cause shifts in the total product curve More output can be produced with same inputs Labor productivity can still increase if there are improvements in technology Even though any given production process exhibits diminishing returns to labor Example Malthus and the Food risis n Essay on the Principle of Population, 1798 Malthus predicted mass hunger and starvation for the world His argument - Diminishing returns inherently limit agricultural output while the population will continue to grow. Why did Malthus prediction fail? hanges in technology the agricultural revolution

5 Slide 17 Labor Productivity Macroeconomists are particularly concerned with labor productivity The average product of labor for an entire industry or the economy as a whole Links macro- and microeconomics an provide useful comparisons across time and across industries Links between labor productivity and living standards Increased productivity per worker leads to increases in possible consumption for a given population Slide 18 For next time We ll begin looking at how firms produce in the long run, when all inputs are allowed to vary Please Read: Section 6.4 of your text Quiz nnouncement Next Wednesday overing Sections