When is average product at its maximum

Over those periods, managers may contemplate alternatives such as modifying the building, building a new facility, or selling the building and leaving the restaurant business. The planning period over which a firm can consider all factors of production as variable is called the long run.

At any one time, a firm will be making both short-run and long-run choices. The managers may be planning what to do for the next few weeks and for the next few years.

Their decisions over the next few weeks are likely to be short-run choices. Decisions that will affect operations over the next few years may be long-run choices, in which managers can consider changing every aspect of their operations. Our analysis in this section focuses on the short run. We examine long-run choices later in this module.

A firm uses factors of production to produce a product. The relationship between factors of production and the output of a firm is called a production function. Our first task is to explore the nature of the production function.

Consider a hypothetical firm, Acme Clothing, a shop that produces jackets. Suppose that Acme has a lease on its building and equipment. Figure 8. A total product curve shows the quantities of output that can be obtained from different amounts of a variable factor of production, assuming other factors of production are fixed.

Notice what happens to the slope of the total product curve in Figure 8. Between 3 and 7 workers, the curve continues to slope upward, but its slope diminishes.

Beyond the seventh tailor, production begins to decline and the curve slopes downward. We measure the slope of any curve as the vertical change between two points divided by the horizontal change between the same two points. The slope of a total product curve for any variable factor is a measure of the change in output associated with a change in the amount of the variable factor, with the quantities of all other factors held constant.

The amount by which output rises with an additional unit of a variable factor is the marginal product of the variable factor. Mathematically, marginal product is the ratio of the change in output to the change in the amount of a variable factor.

The marginal product of labor MP L , for example, is the amount by which output rises with an additional unit of labor. It is measured as the slope of the total product curve for labor.

In addition we can define the average product of a variable factor. It is the output per unit of variable factor. The concept of average product is often used for comparing productivity levels over time or in comparing productivity levels among nations. When you read in the newspaper that productivity is rising or falling, or that productivity in the United States is nine times greater than productivity in China, the report is probably referring to some measure of the average product of labor.

The total product curve in Panel a of Figure 8. Panel b shows the marginal product and average product curves.

Notice that marginal product is the slope of the total product curve, and that marginal product rises as the slope of the total product curve increases, falls as the slope of the total product curve declines, reaches zero when the total product curve achieves its maximum value, and becomes negative as the total product curve slopes downward. As in other parts of this text, marginal values are plotted at the midpoint of each interval.

The marginal product of the fifth unit of labor, for example, is plotted between 4 and 5 units of labor. Also notice that the marginal product curve intersects the average product curve at the maximum point on the average product curve.

When marginal product is above average product, average product is rising. When marginal product is below average product, average product is falling. The first two rows of the table give the values for quantities of labor and total product from Figure 8. Average product, given in the fourth row, is output per unit of labor.

Panel a shows the total product curve. The slope of the total product curve is marginal product, which is plotted in Panel b. Average Product falls when Marginal Product 4. Marginal Product can be zero and negative but Average product is never zero.

When Total Product increases at an increasing rate, Average Product also increases. When Total Product increases at a diminishing rate, Average Product declines. Since Total Product is always positive, Average Product also remains throughout positive. Answer: The reaction of AP in different cases will be: 1. AP will rise. AP will fall but it will remain positive. AP will be constant and at its maximum point. Answer: The behaviour of TP in different cases will be: 1. TP increases at increasing rate.

TP increases at diminishing rate, 3. TP is at its maximum and constant. TP decreases. Answer: The law of variable proportion shows that as we increase the quantity of only one input, keeping other inputs fixed, the total product increases at an increasing rate in the beginning, then increases at diminishing rate and after a level of output ultimately falls.

The behaviour of Total product according to this law is as under: 1. TP increases continuously from points O to A. It increases at an increasing rate convex shape from O to P and at a diminishing rate concave shape from P to A. TP is maximum at A and remains so up to point B.

After Point B, Total Product falls. TRUE B. Explanation: Marginal product of a variable input is an addition to total output due to one unit increase in variable input. Explanation: Marginal product is addition to the total output due to the increase in one unit variable input.

Here, total output increases by 20 units due to two units increase in variable input. Explanation: This is because when there are diminishing return to factor, then total product increase at diminishing rate. Explanation: Total product will also increase when marginal product decreases and when marginal product decreases, the total product increases at diminishing rate. Explanation: It is not necessary that the increase in total product always indicates that there are increasing returns to factor because when there are diminishing returns to factor, then also total product increases but at a diminishing rate.

Explanation: It is so because when there are diminishing returns to factor, only marginal product tends to fall and total product tends to increase at a diminishing rate.

Explanation: As when there is diminishing returns to a factor, total product increases at diminishing rate and never falls during diminishing returns. Explanation: As when there is increasing return, total product increases at increasing rate and when there are diminishing returns, total product increases at a diminishing rate. Explanation: Rising of marginal product implies that the total product increases at an increasing rate. This pulls up the average product also. Explanation: There may be an intermediate stage when the marginal product may be falling, the average product keeps rising or constant.

This occurs when the fixed inputs are better utilised. Explanation: Marginal product can be negative.

But the average product can never be negative, because total product will always be a finite quantity. Explanation: Average product may increase even if marginal product does not increase. Marginal product rises and falls at a faster rate than the average product. Marginal product curve cuts the average product at its maximum point which implies that average product may be increasing even if marginal product is falling.

Explanation: Total product continues to increase till marginal product reaches zero. As soon as marginal product becomes negative less than zero , total product will start declining. Answer: The marginal and average product curves will fall because diminishing marginal returns means that total product increases at diminishing rate that makes the average and marginal product to fall.

It can be explained with the help of the given diagram. Answer: Average product can rise even if marginal product is falling as long as the marginal product is higher than the average product. Answer: The total product function would be upward sloping and increases at a constant rate. Answer: The statement is false because if average product is equal to marginal product, average product is at its maximum.

Answer: The statement is false because diminishing returns occur when marginal product falls as additional units of labour are combined with fixed inputs in the production process. Answer: Yes, It adds to the utility and generates income. Value: Critical thinking. Answer: The productivity of human resource can be increased with the help of human capital formation by providing training and skill to available labour force.

Answer: Availability of agricultural land is limited in the world, production of food grains may be increased by continuous increase in variable factors only up to a optimum combination with fixed factor. After that law of negative returns is applied. Answer: Because in the production of plastic product a lot of harmful gases are released in the atmosphere.

Value: Environment conservation. Answer: 1 and 2 do not generate any income. These generate income. Answer: There are various efforts; namely, 1. To increase use of renewable resources 2.

To explore the substitutes of resources 3. To reduce the wastage of resources. To spread awareness about the effectively and optimum use of natural resources.

Value: Environmental conservation. Answer: No, the production function does not exhibit diminishing marginal returns. As the amount of labour hired increases, the marginal product of labour is constant. This violates the law of diminishing marginal returns.

Short run is a period of time in which some factors are variable, and at least one factor is fixed. The level of output in a firm can be increased only by increasing the quantity of variable factors. The quantity of fixed input remains unchanged at different levels. Therefore, when variable factors are increased, whereas the quantity of fixed factor remains unchanged, the proportions between variable factors and fixed factors get changed.

These are known as variable factor proportions. In the long run all the factors become variable because we can change both the factors of production, that is why fixed factor also becomes variable.

Therefore, when the scale of production of a firm is increased, quantity of all the factors is increased in a given proportion. These are known as fixed factor proportions. Answer: Average Product of am input is per unit product of variable factors.

It is calculated by dividing the total Product by the units of variable factor. Answer: According to the Law of Variable Proportion when only one input is increased while all other inputs are kept constant, Marginal Product and Total Product behave in the following manner: 1.

When Marginal product rises till Point P1 , Total product increases at an increasing rate convex shape till point P. When Marginal product falls and remains positive Till point B1 , total product increases at a diminishing rate concave shape till point A , 3.

When Marginal product becomes negative after point B1 , total product falls after point B. Answer: The behaviour of Marginal product in the law of variable proportion is as under: 1. When Marginal p roduct becomes negative after point B1 , total product falls after point B.

Causes or Reasons of this Behaviour is as Under: 1. Therefore, the cooperation of the fixed factor is not available to the same extent. Thus, an increase in the variable factor would add less and less to total output. So, variable factor and fixed factor are imperfect substitutes to each other. In such a case, the contribution of additional labour to production is bound to be negative. This is bound to affect total production adversely. Send your Feedback Do you have a suggestion or found some bug?

Let us know in the field below. How was your experience? Textbook Solutions. Doctor may be considered as fixed resource, while assistants can be considered variable resources. The average product increases when the marginal product exceeds the average product.

The average product falls when the marginal product is smaller than the average product. The average product is at its maximum and does not change when the marginal product equals the average product. This is the usual relationship between average and marginal variables. If your GPA or grade point average is 3. GPA is the average variable; your grade of each class is the marginal variable. A marginal variable which is greater than the average variable will increase the average variable, a smaller than average marginal variable will lower the average variable.

Total Cost TC is the cost of all the productive resources used by the firm. It can be divided into two separate costs in the short run. Marginal Cost MC is the increase in total cost resulting from a one-unit increase in output.

Marginal decisions are very important in determining profit levels. All curves are U-shaped, except the AFC curve. The AFC curve is downward sloping because the fixed costs are spread over output. As output increases, the AFC decreases.