Using two carefully-labeled diagrams, explain how MPL and APL can be derived from a firm's production function. In your answer, explain the relationship between average and marginal product.
What will be an ideal response?
The firm's production function is illustrated in the left-hand panel of Figure 7.10. The APL at any level of labor (L) is measured as the slope of a line from the origin to the production function at L. The MPL at any level of labor (L) is measured as the slope of a line tangent to the production function at L. The relationship between average and marginal product of labor can be seen by comparing the slopes of these lines at different levels of labor.
Consider the amount of labor represented by L1. At L1, the slope of the line tangent to the production function is greater than the slope of the line from the origin to the production function. This means that the MPL exceeds APL at L1. This is shown in the right-hand panel of Figure 7.10 where the MPL curve lies above the APL curve at L1 units of labor. At L2 units of labor, the slope of the line tangent to the production function is equal to the slope of the line from the origin to the production function. This means that the MPL is equal to APL at L2. This is shown in the right-hand panel of Figure 7.10 where the MPL curve intersects the APL curve at L2 units of labor. Finally, at L3 units of labor, the slope of the line tangent to the production function is less than the slope of the line from the origin to the production function. This means that the MPL is less than APL at L3. This is shown in the right-hand panel of Figure 7.10 where the MPL curve lies below the APL curve at L3 units of labor. These two graphs illustrate the basic relationship between the average product of labor and the marginal product of labor. Whenever MPL exceeds the APL, additional workers are more productive than the average. As a result, employing additional workers will cause APL to increase. Conversely, whenever MPL is less than APL, additional workers are less productive than average. As a result, hiring additional workers will cause APL to fall.
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If Project A has a cost of $2, and provides a benefit of $3, and Project B has a cost of $ 5 and provides a benefit of $8, which of the following statements is true?
A) The net benefit of Project A is $5. B) An individual can optimize by choosing Project B. C) Project A has a higher net benefit than Project B. D) A shift from Project A to Project B increases the net benefit by $1.
In long-run equilibrium, the monopolistically competitive firm:
a. will break even. b. will cease to advertise. c. will earn a positive economic profit. d. will face a perfectly elastic demand curve. e. will no longer need to engage in non-price competition.