Question

2020-03-05 Theory of Production Problem #2: 1. On the same set of axes draw the TP, AP and MP, curves of problem #1 as smooth curves. 2. Explain the shape of the AP, and MP, curves in part (1) in terms of the shape of the TP curve. 2020-03-05

Answer 1

Problem #1

1. To calculate Value of Average Product (AP), the formula is: Total Product (TP) / Labour and to calculate the value of Marginal Product, the formula is: Change in TP/Change in Labour. so the values of AP and MP in table are following:

Land	Labour	TP	MP	AP
1	0	0	0	0
1	1	2	2	2
1	2	5	3	2.5
1	3	9	4	3
1	4	12	3	3
1	5	14	2	2.8
1	6	15	1	2.5
1	7	15	0	2.14
1	8	14	-1	1.75
1	9	12	-2	1.33

2.
MPa Labour とエ243200totype-1-9

Problem #2

1.

Labour MPP TP, APEMP VED=0 tono mog - T

2. Initially the shape of TP is concave upward as it is increasing at an increasing rate simultaneously MP is upward sloping as well as AP is also upward sloping in the first stage. At the end of first stage and starting of second stage the shape of TP changes to concave downward as now it will now increase at a decreasing rate, on the other hand AP and MP become equals to each other and AP is maximum at this point. After this point in 2nd stage MP starts to fall but remain positive and AP is also falling. So now at end point of second stage MP become 0. In third stage TP is downward sloping but in this stage TP starts to falls down, AP and MP are also downward sloping but MP become negative.

conclusion: shape of TP is concave upward then concave downward and finally downward sloping. Shape of AP and MP is inverted U shape.

Problem #3

1. In terms of land and labour, the law of diminishing return states that as producer increases the quantity of variable factor (labour) with fixed factor (land), the MP eventually decreases.

2. The Law of Diminishing Return starts to operate at point E where MP and AP are equal i.e end of stage 2nd and start of stage 3rd.

Problem #4

As producer employ variable factor (labour) with fixed factor (land) there are 3 stages of production for variable factor (labour):

Stage 1: TP increases at an increasing rate, MP rises due to law of increasing return to a variable factor.

Stage 2: TP increases at a decreasing rate, MP falls but remain positive due to law of decreasing return to a variable factor.

Stage 3: TP starts to decline, MP falls down and become negative due to law of negative return to a variable factor.