Prince Dave T.

Nieves AGMT 1100

BSA 1-3 03/06/24

THEORY OF PRODUCTION
Activity No. 6

1. Define the following terms: production function, average product, marginal product, law of diminishing marginal
returns, constant returns to scale, increasing returns to scale and decreasing returns to scale.
Production function – the maximum amount of goods that could be produced by different combinations of inputs
in a given time.
Average product - pertains to the average number of products that can be produced by a number of inputs. To put
simply, it is the total number of products divided by the number of inputs per unit.
Law of diminishing marginal returns – this law states that the benefit of increasing an input, given that other
inputs are held constant, will decline at some point.
Constant returns to scale – a situation where an increase in all factors of production results in a proportional
increase in production.
Increasing returns to scale – refers to the situation where an increase in all factors of production results in an
increase in production in a larger proportion.
Decreasing returns to scale – the opposite of increasing returns of scale, where an increase in all factors of
production results in an increase in output in a smaller proportion.
2. Complete the table below:

Variable input Total Product Average Product Marginal Product

(Labor)
0 0 0
10 250 25 -
20 600 30 35
30 1200 40 60
40 1900 47.5 70
50 2700 54 80
60 3600 60 90
70 4400 62.86 80
80 5000 62.5 60
90 5425 60.28 42.5
100 5700 57 27.5
110 5825 52.95 12.5
120 5900 49.17 7.5
130 5925 45.58 2.5
140 5875 41.96 -5

With the values in the above table, plot Total Product (TP), Average Product (AP) and Marginal Product (MP) in a
single graph with units of product at the vertical axis and labor units at the horizontal axis. You can also use two
(2)graphs (TP above AP and MP curves) Label your graphs properly. Use graphing paper for your curves if you do
not have computer/laptop access but insert graph is recommended.
 7000

6000

UNITS OF PRODUCT 5000

4000

3000

2000

1000

0
0 10 20 30 40 50 60 70 80 90 100 110 120 130
LABOR UNITS

Total Product Average Product Marginal Product

100
90
80
70
UNITS OF PRODUCT

60
50
40
30
20
10
0
0 10 20 30 40 50 60 70 80 90 100 110 120 130
LABOR UNITS

Average Product Marginal Product

3. Describe the shapes of the curves drawn. What relationship can you observe between TP and AP curves?
How about between MP and TP curves? AP and MP curves?
The graph shows that as the AP approached maximum, the increase in TP starts to decline. This
suggests a direct relationship between TP and AP. On the other hand, the MP starts to decline as soon as
the TP starts to plateau and stays positive until the TP starts to decrease. The relationship between the
two is direct. In a similar manner, the plateauing AP caused MP to decline just before the AP reached its
peak. Nevertheless, the relationship between the two is direct.
4. With the relationship between AP and MP curves, delineate and describe the three stages of production.
The relationship between the AP and MP curves is direct. From this graph, the stages of production can be
discerned as the period between the AP maximum (Stage1), the period between the AP and until the MP is zero
(Stage 2), and the period when the MP is negative (Stage 3).