Erin Mae Aseron Ricalde Basic Microeconomics

BSBA FM1 (Group 2) Ma’am Susan Reyes

Question for Discussion – Page 80

1. Describe the three stages of production. What stage of production is most favorable? Explain your
answers.

Total Product the total volume or amount of final output produced by a firm using given inputs in a
given period of time.

Average output (or products) produced by each input (often, number of employees). In order to
calculate average product, you simply divide total product by variable inputs.

Marginal product of labor is the slope of the total product curve, which is the production function
plotted against labor usage for a fixed level of usage.

Stage two is the period where marginal returns start to decrease. Each additional variable input will
still produce additional units but at a decreasing rate. This is because of the law of diminishing
returns: Output steadily decreases on each additional unit of variable input, holding all other inputs
fixed. For example, if a previous employee added nine more cans to production, the next employee
may only add eight more cans to production. The total product curve is still rising in this stage, while
the average and marginal curves both start to drop.

2. Explain the relationship between marginal product (MP) and average product (AP).

The change in total product divided by the change in resource amount is called marginal product (or
inputs). The entire product is divided by the amount of economic resources to arrive at the average
product (or inputs). When the average product curve meets the marginal product curve, it reaches its
pinnacle.

3. Explain the difference between short-run and long-run analysis of production. Cite an example.

The time period during which the firm is unable to adjust the quantities of all inputs is referred to as
the short run production function. Long run production function, on the other hand, denotes the
time span over which the firm can alter the quantities of all inputs.

4. Explain the law of diminishing marginal returns and give numerical examples.

When one unit of production is increased while all other components remain fixed, decreasing
marginal returns occur, resulting in decreased output levels. To put it another way, production begins
to degrade. For instance, a worker could work for 40 hours and create 100 units every hour.

5. Using the following table, what is the marginal product (MP) of the 5 th unit of labor?

Units of Labor (L) Total Product (TP)

0 0
1 15
2 30
3 41
4 49
5 55

MP = (Qn – Qn-1)
(Ln – Ln-1)
= 55 – 49
5–4
= 6
1
=6
Erin Mae Aseron Ricalde Basic Microeconomics
BSBA FM1 (Group 2) Ma’am Susan Reyes
CHAPTER TEST – PAGE 81-82

1. The following is a production schedule of a certain firm. Fill the missing value for average product
(AP) and marginal product (MP).

Land Labor TP AP MP
1 0 0 0
6
1 1 6 6
10
1 2 16 8
8
1 3 24 8
6
1 4 30 7.50
4
1 5 34 6.80
0
1 6 34 5.67
-2
1 7 32 5.57
-6
1 8 26 3.25

2. Verify the table in problem number 1, plot the total product (TP), marginal product (MP), and average
product (AP), and determine the three stages of production. At what stage should one produce? Explain

Stage 1 Stage 2 Stage 3

Stage 1 Stage 2 Stage 3

 Stage I beginning at the origin and ending at the highest point of the APL. The TP increases at a faster rate
than both the APL and the MPL. Stage II runs from the highest point on the APL to the lowest point on the
MPL. The TP is increasing at a slower rate, but the APL and MPL are falling. MPL is 0 until it reaches the
negative range in Stage III of production. The TP is dropping, and the APL is lowering as well, but it is still
positive, whereas the MPL is already negative. Stage II is the most desirable of the three stages of production
because the MPL and APL are both positive although decreasing.

3. Using the following table, at what points do diminishing marginal returns begin? Show your
computation.

Points Units of Labor (L) Total Product (Quantity/day) Marginal Product

a 0 0
b 1 27 27
c 2 62 35
d 3 95 33
e 4 122 27
f 5 126 4
g 6 125 1

4. Given the following table for a firm whose price is 16 pesos per unit of quantity sold, what is the
marginal product of 3rd unit of labor?

Units of Labor (L) Total Product per Day (Q) Marginal Product (MP)
0 0
13
1 13
9
2 22
5
3 27

5. The information illustrated between A and B on the above marginal product (MP) curve is equivalent
to which pair of points on the following total product (TP) curve below? Briefly explain your answer.

6.
POINTS I II III IV
L K L K L K L K
A 3 28 4 28 5.5 30 8 32
B 2 20 3 22 5 24 7 25
C 3 12 4 16 5.5 18 8 18
D 4 9 5 12.6 6 16.6 9 14
E 5 7 6 10 7 14 10 12.8
F 6 6 7 8.8 8 12 11 14
G 7 5.4 8 8 9 11.2
H 8 6 9 8.8 10 12
 a. Plot isoquants I, II, III, IV on the same set of axes.

b. What do the isoquants indicate?

The isoquants indicate the different combinations of capital (K) and labor (L) of the four
isoquants. Curved isoquants, which describe inputs that are neither perfect substitutes nor perfect
complements, are the most prevalent isoquants. They are convex, meaning they are steeper near the y-
axis and flatten out as they get closer to the x-axis.

c. Compute for the marginal rate of technical substitution (MRTS) on all isoquants.

POINTS I MRTS II MRTS III MRTS IV MRTS

L K L K L K L K
A 3 28 4 28 5.5 30 8 32
B 2 20 3 22 5 24 7 25
C 3 12 4 16 5.5 18 8 18
D 4 9 5 12.6 6 16.6 9 14
E 5 7 6 10 7 14 10 12.8
F 6 6 7 8.8 8 12 11 14
G 7 5.4 8 8 9 11.2
H 8 6 9 8.8 10 12

d. If the price of capital (P K) is 1 peso per unit while the price of labor (P L) is 2 pesos per unit and assuming
that the total outlay of the producer rises from 12 pesos and then 20 pesos per time period,
determine the expansion path.