Question

ECON 1150 In-Class Worksheet 2K

“Italian pasta increasingly made of wheat from Canada and U.S” (Durishin, M. & Robinson, A. Vancouver Sun Newspaper, Tuesday, December 3, 2019, p. B4).

After his playing days, Im-Beom Hwang has retired to become a Pasta Wheat farmer. His Farm/Firm is currently operating in the SHORT-RUN and has the following Production Schedule:

Quantity of Labour, L	Total Production TMT
0	0.00
1	10.00
2	25.00
3	45.00
4	70.00
5	90.00
6	105.00
7	115.00
8	120.00
9	123.00
10	125.00

1. Given Im-Beom’s Production Schedule give above, determine the Marginal Productivity of Labour, MP_Lfrom the data.
   
2. Briefly Explain the CONCEPT of the Division of Labour AND where the concept is illustrated in the data determined in Question 1 AND Why. [NOTE: Read the following page for Smith’s short example of the Pin Factory before answering this question]
   
3. Briefly Explain the CONCEPT of the Law of Diminishing Marginal Product [of Labour] AND where the concept is illustrated in the data determined in Question 1 AND Why.
   
4. Given Im-Beom’s Production Schedule given above, determine the Average Productivity, AP_L from the data.

Chapter 1 Of the Division of Labour

“To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving, the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.

I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.”

Answer 1

The Marginal Productivity of Labour is the additional output which results from adding an extra unit of labout. It is calculated by taking Q/L , So, in the above data, the values MP_L are:

Quantity of Labour	Total Production	MPL =  Q/L
0	0	-
1	10	10
2	25	15
3	45	20
4	70	25
5	90	20
6	105	15
7	115	10
8	120	5
9	123	3
10	125	2

In this book, the Wealth of Nations, Adam Smith wrote about his pin example. He pointed it out that an individual who is not well acquanted with the business could hardly produce a single pin a day and definitely not more than twenty pins. But, if this same pin-making business is divided into a number of sub-trades or sub-jobs and each worker specializes in that trade, like drawing out wire. straightening it, grinding it, maing the pin top etc. and likewies 18 sub operations, and if these distinct jobs are all performed by different people or even if one person performs two or three of them, then such ten workers can produce upto 48 thousand pins per day.So, we see how dividing the work and letting each of the worker execute what he specializes in, i.e. what he is best in, will increase the total production by multiples.

Similarly, in this wheat pasta factory and farm, if different workers are assigned different jobs, based on their strengths, then it will increase the total production by multiples. Total product is just the output which is produced by the entire population of the employed workers. Marginal product is the additional output produced by an extra unit of labour hired. So, from the MPL values we see, with hiring of a second worker , the production increases by 15 and with the hiring of the third, the production increases by 20, so, implying as the workers are getting added, the MPL is increasing. This is because as more workers are added, the workers are able to divide up the respective tasks and specialize, i.e. engage in doing what they do best. This is why the division of labour increases the total production.

Now, coming to the concept of law of diminishing marginal product of labour:

In the short run, there are two kinds of inputs, broadly,one will be the fixed inputs, i.e. land for growing wheat, capital such machinery etc. to make the pasta, and the other will be the variable input i.e labour which can be changed accordingly. Now, this law states that there will be a point where adding an extra unit of the variable input, i.e. labour will make things so crowded or chaotic, that the total production will increase at a decreasing rate. In this case, the MPL will start to decrease. This is because as more workers are added, the fixed inputs such s land and capital will become more scarce. So, the law states that as succesive amounts of the variable inputs is added to a fixed input , the marginal contribution of the extra unit of variable inout, will eventually reduce. As the MPL falls but still remains positive, total product will continue to rise, but at a decreasing rate. In this case, from the above table, we see:

MPL starts faling when the 5th worker is added, it falls from 25 to 20, and as more an dmore labour is hired, the MPL falls, but remains positive, implying that TP increases, but at a decreasing rate.

The Average Productivity of Labour or APL is teh average amount of output, each laborer can produce. It is computed using the formula APL = TP/L , where TP = total product, L = Total quantity of labour.

Quantity of Labour (L)	Total Production (TP)	MPL =  Q/L	APL =TP/L
0	0	-	0
1	10	10	10
2	25	15	12.5
3	45	20	15
4	70	25	17.5
5	90	20	18
6	105	15	17.5
7	115	10	16.4
8	120	5	15
9	123	3	13.67
10	125	2	12.5

So, we see the APL's computed. So, we see till the level where MPL > APL, the APL increases as labour increases, but once the MPL reduces than APL, i.e. when worker 6 is hired, the APL starts decreasing as labour increases therafter. Thsi is the relationship between MP_L and AP_L.