Three Stages of Production

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Alexis Bedford
Eco 550
Assignment # 1

The three stages of production relating to this assignment are increasing marginal returns, diminishing marginal returns and negative marginal returns. Looking at our graphed data, we can follow the changes between each stage in the data. Increasing Marginal Returns are when the marginal product curve and total product are increasing and positive. (Economics for Managers, Farnham, 2005, Pg 131) In the sample we are analyzing, as the firm adds employees, each new employee adds to total product. Therefore, the slope of the curve for marginal product shows that as you add more workers, each adds more to the table. The law of diminishing returns tells us that these workers will reach a maximum and the MP will peak and the increasing marginal returns will begin to decrease. (Economics for Managers, Farnham, 2005, Pg 131) In the sample Increasing marginal return tells us that with each additional worker we add, marginal profit increases by five until we as add three employees and decreases by five as we add a fourth. Stage two, Diminishing Marginal Returns, tells us that, each additional worker the firms hires adds more than the worker before them, until a peak is reached at diminishing marginal product and each worker adds less to the total product that the one before them but is still positive. (Economics for Managers, Farnham, 2005, pg 131) Total product is increasing at a decreasing rate. This is where the curve is reaching a balance between MP and AP and occurs before MP begins to fall below AP on our graph. At this point, law of diminishing marginal returns shows us that with each additional person, the MP increases but when too many people are added and room is taken up, the productivity begins to goes down. (Economics for Managers, Farnham, 2005, pg 131) Relating this to our graph, MP begins to decline and fall below AP and TP remains positive. At four employees AP and MP are equal with each...
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