The Production Function The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good Cobb-Douglas function
The Production Function • The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good. • Cobb-Douglas function
Marginal product The marginal product of any input in the production process is the increase in the quantity of output obtained from an additional unit of that input Marginal E Additional output roduct Additional input
Marginal Product • The marginal product of any input in the production process is the increase in the quantity of output obtained from an additional unit of that input. Additional input Additional output = Marginal product
A Production function and Total cost Number of Output Marginal Cost of Cost of Total cost of Workers Product of Factory Workers Inputs Labor 0 $30 $O $30 1 50 50 30 10 40 2 90 40 30 50 120 30 30 30 60 140 30 40 70 150 10 50 80
A Production Function and Total Cost Number of Workers Output Marginal Product of Labor Cost of Factory Cost of Workers Total Cost of Inputs 0 0 $30 $ 0 $30 1 5 0 5 0 3 0 1 0 4 0 2 9 0 4 0 3 0 2 0 5 0 3 120 3 0 3 0 3 0 6 0 4 140 2 0 3 0 4 0 7 0 5 150 1 0 3 0 5 0 8 0
A Production function Quantity of Output cookIes per hour) 150 roduction function 140 130 120 110 100 90 80 60 50 40 30 20 10 4 5 Number of workers hired
A Production Function Quantity of Output (cookies per hour) 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 Number of Workers Hired Production function
Diminishing Marginal Product Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input increases Example: As more and more workers are hired at a firm each additional worker contributes less and less to production because the firm has a limited amount of equipment
Diminishing Marginal Product • Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input increases. • Example: As more and more workers are hired at a firm, each additional worker contributes less and less to production because the firm has a limited amount of equipment