# Eco 550 Assignment 1

Topics: Diminishing returns, Economics, Short-run Pages: 2 (460 words) Published: April 24, 2011
Assignment 1
In Microsoft Excel, complete the table below, then using one chart, draw the following curves: * Short-run average product (AP) curve;
* Short-run marginal product (MP) curve.
Table showing the Average and Marginal product of labor for a hypothetical firm

Amount of labor( units)| Amount of capital(No. of machines)| Output of parts(Q, hundreds of parts)| AP (Q/L)| MP (∆Q/∆L)| 0| 5|     0|  |  |
1| 5|   49| 49.00| 49.00|
2| 5| 132| 66.00| 83.00|
3| 5| 243| 81.00| 111.00|
4| 5| 376| 94.00| 133.00|
5| 5| 525| 105.00| 149.00|
6| 5| 684| 114.00| 159.00|
6.7| 5| 793| 118.90| 163.05|
7| 5| 847| 121.00| 163.00|
8| 5| 1008| 126.00| 161.00|
9| 5| 1161| 129.00| 153.00|
10| 5| 1300| 130.00| 139.00|
11| 5| 1419| 129.00| 119.00|
12| 5| 1512| 126.00| 93.00|
13| 5| 1573| 121.00| 61.00|
14| 5| 1596| 114.00| 23.00|
15| 5| 1575| 105.00| -21.00|

Three Stages of Production:
Stage 1 of production: The first stage starts from Unit 1 of labor to almost 11th unit. Here the marginal product curve is positive and increasing. Therefore, the total product is increasing at an increasing rate. This stage refers to Law of increasing marginal returns. Stage 2 of production: The second stage starts from Unit 11 of labor to the 14th unit. Here the total production is increasing at a decreasing rate. Marginal Product is less than Average Product, but both are decreasing but still above negative. This stage refers to the Law of Diminishing Marginal Return of Law of Diminishing Marginal Product. Stage 3 of production: The third stage starts from Unit 15 of labor because here the Marginal Product curve is negative and decreasing, and the Total Product also decreasing. This stage refers to the Law of Negative Marginal Returns. Explain why the firm’s short run production has only one ‘rational’ stage of production.

In this case the rational...