Homework #3

q
Q1 a. The average product of labor, APL, is equal to . The marginal product of labor, MPL, is
L
q
equal to , the change in output divided by the change in labor input. For this production
L
process we have:

L q APL MPL
0 0 — —
1 10 10 10
2 18 9 8
3 24 8 6
4 28 7 4
5 30 6 2
6 28 4.7 2
7 25 3.6 3
b.
Yes, this production function exhibits diminishing returns to labor. The marginal product of
labor, the extra output produced by each additional worker, diminishes as workers are added,
and this starts to occur with the second unit of labor.
c.
Labor’s negative marginal product for L  5 may arise from congestion in the chair manufacturer’s
factory. Since more laborers are using the same fixed amount of capital, it is possible that they
could get in each other’s way, decreasing efficiency and the amount of output. Firms also have
to control the quality of their output, and the high congestion of labor may produce products that
are not of a high enough quality to be offered for sale, which can contribute to a negative
marginal product.

Q2- Fill in the gaps in the table below.

Quantity of Total Marginal Product Average Product

Variable Input Output of Variable Input of Variable Input
0 0 — —
1 225 225 225
2 600 375 300
3 900 300 300
4 1140 240 285
5 1365 225 273
6 1350 15 225

1
Q3
a- A production function is a mathematical expression that describes how large the
production will be if one uses different combinations of the input factors. Usually, labor,
L, and capital, K, are variables in the production function: q = f (L, K)
Sometimes, a variable for technology is also used in the production function.
b- There are often input factors that are not possible to vary immediately. For example, a
factory could be of a certain size and not possible to sell or increase quickly. The short
run is then defined as the period during which it is impossible to change those input
factors. Often, one assumes that capital is not possible to vary in the short run but that
labor is fully variable.
Long run is then defined as the period when all input factors are variable.
c- The law of diminishing marginal returns states that if one increases, say, labor input by
more and more units, then eventually one reaches a point where additional units
increases production by fewer and fewer units

Q4-
1- The production curve will look like in the upper part of Figure 1 bellow.

2
 2- The average product of labor is the total quantity of units produced divided by
number of working hours. The marginal product of labor is how many extra units are
produced if we add one more unit of labor:
Q
AP  L
L
Q
MP 
L
L

MPL corresponds to the slope of the production function in the graph. APL corresponds
to the slope from the origin to a certain point on the production curve.
spend time with other students, top
3- The shapes of MPL and APL are given in the lower graph of figure1.
The most characteristic points on the production curve are points A, B, and C. The
corresponding points below are labeled a, b, and c. In point A, the slope of the curve is
the same as the slope of a line from the origin to point A. Consequently, MPL and APL
have the same value there. Thus, at point a, they intersect each other. In point B, the slope
of the production curve is zero. Consequently, MPL intersects the X axis at point b. In
point C the production curve reaches its highest slope. Both to the left and to the right of
C the curve is less steep. Consequently, MPL reaches its maximum at point c.

Bonus Q
Q5-
With capital limited to 9 machine hours, the production functions become q1  30L0.5 and
q2  37.37L0.4. To determine the production function with the highest marginal productivity of
labor, consider the following table:

q MPL q MPL
L Firm 1 Firm 1 Firm 2 Firm 2
0 0.00 — 0.00 —
1 30.00 30.00 37.37 37.37
2 42.43 12.43 49.31 11.94
3 51.96 9.53 57.99 8.68
4 60.00 8.04 65.06 7.07

For each unit of labor above 1, the marginal productivity of labor is greater for the first firm,
DISK, Inc.