Productionand Costs(cont.)
The marginal product of labor (MPL), also called marginal
product (MP), is defined as the increase in production that
comes from an additional unit of labor, either hours or workers.
For example, by working an additional five hours ( from five to
ten), an extra crate is produced. Compare this to the increase
from eighteen to thirty hours to produce an additional crate. At
some point, the amount of workers or hours doesn't produce as
Qt
muc h
u
IANT ITY OF
l' I ) l l' KIN
PHODl' CE D
(( ' HATE S )
5
l. o·w "r m argi na l
prociu · t of l abor
4
2
1
0
Page1
Hi g h er margi n al
/
/
• ---
- ----
s
protlu
1
·t of la b or
-
10
1&20
30
Il ot
US Of' WOHK
Productionand Costs(cont.)
The point at which the amount of workers or hours worked
doesn't produce as much and is not worth adding is called
diminishing returns to labor . In the pumpkin firm, there is a
point where each additional labor input, either workers or
hours, adds less and less additional output. If an additional
labor input costs more than is beneficial, the worker won't be
hired or a worker won't work so many hours. There is always
an optimal number of workers at a business at a time.
Anything more is a waste and loss to the firm.
Qu
.-,1'."T I TY
... , ~ 1 ... KlN
OF
S
l'HOUt"
C E:l>
(CHATI-
.:..~)
G
5
L o ,ver
produe;t
4
2
J Jigher
proc.lu
margina
l
or l abor
marginal
labor
·t o,
l
0
IO
20
:30
Il ot •n s
Page2
OF
'\VOUK
The ProductionFunction
Recall that the marginal product of labor is the change in
production that can be obtained with an additional unit of
labor. Decreasing marginal product of labor is called
diminishing returns to labor. Increasing marginal product of
labor is called increasing returns to labor.
increasing marginal product of labor c::::>
decreasing marginal cost
increasing marginal cost
decreasing marginal product of labor c::::>
Page3
The ProductionFunction(cont.)
The figure shows how, for low levels of labor input, the
marginal product of labor increases. At low levels of
production, increasing marginal product of labor is a
possibility because the firm's capital can be better utilized:
during an oil change, for example, the mechanic can work on
another truck as oil drains from the first truck.
Q UA1''T
I TY
12
10
..
8
..
---4
...bul
lh e n s t <.l rts
....
4
... and
hlr ger.
10 d e ·lin t.' ... J
. ...
6Q
..
~larg
i na l produ
c t of l abo r =
-z
2
0
Page4
100
1 50
200
Il o ni s
250
OF
WO RK
(L)
The ProductionFunction(cont.)
The table shows increasing marginal product of labor up to 3
units of output produced. Diminishing returns then begin .
Quantity
(pianos
moved)
0
{.~
4
5
6
27
37
27§110
37
,<10
48
48
60
600
740
74
-
IL.fs~
.I_
- r f-i--.,
Costs
Wage
costs)
1sg~,so
0
l 5
_, ...,_
Q
Labor
at $10
(variable
Hours
of Work
1,e
•
2
10
•
fl: C,"QC\.y&
s
:}~
.-... . :l-·
G
-
--t
:__
,:~;.,:;,
o~.
L....::..:...:
=
__J-<. ...
: }- - •
~
2
0
Page5
__
-,-{
. .. 1.hc:i,.
l ...
1:>1. ,1
=<l
larg
gect.=
larp;er
.1.00
~
::.::....:::..:
c=-:...;::.;...;::..;::.._---'--
~~
1.1 ......
er
.s t.a .rt. -"""" 10
...
I
...
f
...
1 50
d ec
.
_
• i•-.. ~---
I
_
__.
)
..... ...
200
250
The ProductionFunction(cont.)
Be sure to distinguish between the marginal product of labor
and the averag·e product of labor. The average product of
labor is the quantity produced, or total product, divided by the
total amount of labor input.
Page6
The ProductionFunction-Questions
AP
MP
QUANTITY OF ABOR
7. The graph above show s the rnarginal produ ct (MP) and the
average product (AP ) of labor for a finn that uses labor as the
only variabl e input and hires its labor in a perfecUy competitiv e
market. At which qu antity of labor does rnarginal cost change
frotn decreasing to increa ing?
(A)
(B)
(C)
(D)
L1
L2
L3
L4
(E) L5
Page7
The ProductionFunction-Questions
AP
MP
QUANTITY OF ABOR
7. The graph above show s the rnarginal produ ct (MP) and the
average product (AP ) of labor for a finn that uses labor as the
only variabl e input and hires its labor in a perfecUy competitiv e
market. At which qu antity of labor does rnarginal cost change
frotn decreasing to increa ing?
(A) L 1
•
L2
(C) L 3
(D) L 4
(E) L5
Page8
MarginalProductand MarginalRevenueProductof
J,abor
The third column is the marginal product of labor (MPL) and
the last column shows the marginal revenue product of labor
(MRPL). This is the change in production and total revenue
(TR), respectively, when one additional unit of labor is
employed. For example, the marginal revenue product of
labor, when moving from 2 to 3 workers, is $1,100. The
difference between MP L and MRP L is that MPL focuses on the
change in quantity (Q) produced while MRP L focuses on the
change in revenue
•
Table
Labor
13.1
Input
Workers
Employed
Each Week
(L)
0
l
2
3
Page9
and
Marginal
Quantity
Produced
(Q)
Revenue
Product
at a Competitiv
~
Fi.:.:,:
rm:____.....,...,
Marginal
Product
of Labor
Price of
Output
(dollars)
Total
Revenue
(dollars)
Marginal
Revenue
Product
of Labor
(dollars)
(MP)
(P)
(TR)
(MRP)
100
O~-
~~~~1~1
4
5
42
51
58
9
6
7
63 =======
66
5
3
8
9
68
69
7
=====----=2
I
100
100
100
100
100
100
100
100
1 00
0
1 ,7 0 0
=====--==-----=---===---=1 ,7 0 0
3,100 ~
4,200
5, l 00
5,800
1,400
1, 1 00 .
900
700
6,300
6,600 _
6 ,80 0
6,900
500
300
200
1 00
=======
---=---===---=-
MarginalProductand MarginalRevenueProductof
T,abor-Questions
Quantity of
Marginal
Marginal Revenue
Labor
Product
Product
0
---
---
1
20
$40
2
14
28
3
12
24
4
8
16
5
6
12
6
4
8
42. Ba ed on the table for a perfectly competitive firtn
above, if the wage rate for labor i $15, ho\V tnany
unit of labor should the firtn hire?
(A) 2
(B) 3
(C 4
(D ) 5
{E) 6
Page10
MarginalProductand MarginalRevenueProductof
T,abor-Questions
Quantity of
Marginal
Marginal Revenue
Labor
Product
Product
0
---
---
1
20
$40
2
14
28
3
12
24
4
8
16
5
6
12
6
4
8
42. Ba ed on the table for a perfectly competitive firtn
above, if the wage rate for labor i $15, ho\V tnany
unit of labor should the firtn hire?
(A)
(B)
((D )
2
3
4
5
{E) 6
Page11
The Marginal RevenueProduct of T,abor Equals the
Wage(MRPL = W)
If the wage (W) for one full-time worker at the company below
is $600 per week, the firm will hire a total of five workers to
maximize profits because hiring a sixth worker would result in
a marginal revenue product of labor (MRPL) of only $500,
$100 less than its cost. This is a key rule of profit
maximization: firms will hire workers up to the point where
the marginal revenue product of labor (MRPL) equals the wage
(W), thus MRPL == W.
Table
La bor
13 . 1
Input
Wor ke r s
Employ e d
Ea ch W ee k
(L )
0
1
2
3
4
5
6
7
8
9
Page12
a nd Marginal
Qu a ntity
P r oduc e d
Revenue
M a rgin a l
Product
of La bor
(Q)
(MP)
O~
-
~i~: ~
42
5l
58
l 1
9
7
63 =======
66
68
69
5
3
======-==2
1
P ll"oduc t a t a Comp et i t iv e Fi rm
Pric e of
Output
(doll a r s)
Tot a l
R e v e nue
( doll a r s)
(P)
( TR)
100
100
100
100
100
100
100
100
1 00
100
M argi n a l R e v e nu e
Product
o f La bor
(doll ars )
(MRP)
======-========-==I ,700
0
1,700
3,100 ~
4,200
5 , 100
5,800
6,300
6,600
6,800
6,900
1 ,400
1 ,100
900
700
500
300
200
100
=======::
===----=-=----