Operation

Average Product” as “Average output per employee.” MP has to do with the extra output produced by the last person that was hired. Q (L,K) = a + bL + cL2 +dL3 only labor is in the SR production formula. Q (L,K) = a + bKL + cK2L2 +dK3L3 (Both labor and capital are in LR formula.) TFC =Total Capital Costs = rK Here “r” represents the “capital costs over the specified time period for 1-unit of capital K.” TC = wL + rK, w = wage rate paid to each laborer (per time period),L = number of units of labor used (in that time period),r = capital costs paid for each unit of capital (per time period),K = number of units of capital used (in that time period). Costs = f(Q). Q = f(L). Costs = f(Q(L)). Q=AP*L,
MP equals AP, at highest AP. Whereas, MC equals AVC at lowest AVC. when we are at maximum average product (MP = AP), we are also at minimum average variable cost (SMC = AVC). average labor efficiency is at its max, we are producing with the fewest possible laborers, so our average labor costs are at their minimum. production function” expresses the relationship between labor input and the firm’s output (total product). a short-run S-shaped production function (where labor productivity increases at increasing rates in early ranges and then increase at decreasing rates in later ranges) take this form:Q = -aL3 + bL2 . Lmax AP = -B/2A. MP = dQ/dL = 3AL2 + 2BL. MP (the value of the slope) first increases, reaches a max and then decreases. L max MP = -B/3A. Max MP occurs before Max AP. If Q = AL3 + BL2 (A<0, and B>0)Ave roduct = AP = Q/L = AL2 + BL,Marg Product = dQ/dL = 3AL2 + 2BL,The amount of labor units to hire to produce Max Ave Product = -B/2A (= L max AP ),The amount of labor units to hire to produce Max Marg Product = -B/3A (= L max MP ). Total costs first increase at a decreasing rate (at lower levels of labor) due to early productivity gains of labor (economies-of-scale). But total costs ultimately begin to rise at increasing rates as the productivity of labor