Question

In: Economics

1- From the above table show the three stages of production? 2- Describe the relationship between...

1- From the above table show the three stages of production?
2- Describe the relationship between marginal and average product.
3- If the price of output is $10 , and labor’s wage is $350. How many labors will be hired (L*)?

Inputs of labor Total
Product (TPL) Marginal product of labor (MPL) Average product of labor
(APL) Stages of production
0 0 — —
1 60
2 110
3 150
4 185
5 210
6 225
7 230
8 235
9 230

Solutions

Expert Solution

1.

Increasing return occurs when MPL increases as labor input increases.

Dncreasing return occurs when MPL decreases as labor input increases.

Negative return occurs when MPL becomes negative as labor input increases.

2. Marginal product is the increase in total product as a result of the employment of one more unit of labor input. Average product is the total product divided by the quantity of labor inputs used to produce the total product. In the stage of increasing return MP is above the AP. In the stage of decreasing return AP is above the MP. When the total product reaches maximum, MP becomes zero. When TP decreases, MP becomes negative. The MP curve crosses the AP curve at the maximum of the AP curve.

3. A firm hires the number of workes at the point where Marginal Revenue Product of Labor (MRPL) is equal to the wage rate. From the table it is seen that when wage rate is $350, the firm will hire 4 labors.


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