1. Complete the table (Table 1) below, then draw the following curves: •Short-run average product (AP) curve.
•Short-run marginal product (MP) curve.
Amount of labour( units)Amount of capital(No. of machines)Output (hundreds)Average product (Q/L)Marginal product(∆Q/∆L)
Using Excel to create the curves from the data above, with the average product curve in blue and the marginal product curve in red, Notice that the average product increases up to 10 workers, and then begins to decline. This is because marginal product begins to decline after seven workers.
2. Use the information from the completed table and the graphs to identify the three stages of production and explain why the firm’s short run production has only one ‘rational’ stage of production.
The three stages of production are identified by marginal product of the stage. In the first stage the marginal product is positive and enlarging, where output is increases at a steady rate occurs from zero to 10 workers. In the second stage the marginal product is also positive but is declining, where output increases at a decreasing rate. It occurs after the tenth worker, and is indicted by the decline in average product. This is the point where the MP and AP curves cross up to the point where marginal product becomes negative.Finally, in the...