Average product of labor APL= Q/L Measures the output of an average worker Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Average Product of Labor • APL = Q/L • Measures the output of an “average” worker
Stages of production Increasing Diminishing ative Marginal Marginal Marginal Returns Returns Returns Q=F(K,L) AP MP Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Q L Q=F(K,L) Increasing Marginal Returns Diminishing Marginal Returns Negative Marginal Returns MP AP Stages of Production
Isoquant The combinations of inputs(K, l)that yield the producer the same level of output The shape of an isoquant reflects the ease with which a producer can substitute among inputs while maintaining the same level of output Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Isoquant • The combinations of inputs (K, L) that yield the producer the same level of output. • The shape of an isoquant reflects the ease with which a producer can substitute among inputs while maintaining the same level of output. L
Linear Isoquants Capital and labor are perfect substitutes K Increasing Output QIQ2Q L Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Linear Isoquants • Capital and labor are perfect substitutes Q1 Q2 Q3 Increasing Output L K
Leontief Isoquants Capital and labor are K perfect complements Q ncreasing Capital and labor are Output used in fixed-proportions Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Leontief Isoquants • Capital and labor are perfect complements • Capital and labor are used in fixed-proportions Q3 Q2 Q1 K Increasing Output