Short run product curve - Output and Costs

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Short run product curve



Short-Run Constraint

Short run: is a time period in which the quantity of one or more resources used for production is fixed.

In the short run:

  1. Capital (tools, computers, buildings) is fixed
  2. Resources like labour can be changed
  3. Decisions can be easily changed

In this section, we will look at how the changes in labour affect the output in production.

3 Product Curves

Total Product: the maximum output a given quantity of labor can produce.

Total product curve

Marginal Product: The additional output gained from increasing one-unit of labor.

Marginal product curve

Average Product: The total product divided by the quantity of labor.

Average product curve

Law of Diminishing Returns

Notice from the marginal and average product curve that the law of diminishing returns applies.

Law of diminishing returns

Notice the 2 features:

  1. Both curves increase due to specialization and division of labour.
  2. Both curves decrease later due to less access to capital, and less space to work.

In other words,

Hire more workers \, \, Less productivity of workers\, \, Less gain in output

Maximizing Average Product

How can we maximize average product? Let’s look at the marginal & product curve in one graph.

Marginal & product curve

  1. When MP > AP, the additional one-unit increase gives more output than the average output gained.
  2. When MP < AP, the additional one-unit increase gives less output than the average output gained.
  3. When MP = AP, the additional one-unit increase gives the same output as the average output gained.

Therefore, average product is maximized when MP = AP.

  • Intro Lesson
    Short Run Product Curve Overview:
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Short run product curve

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