Marginal cost and product of labor relationship

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marginal cost and product of labor relationship

In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. Contents. 1 Definition; 2 Examples ; 3 Marginal costs; 4 Relation between MPL and AP. The correspondence between the marginal product and marginal cost curves One worker, working one hour, produces one Stuffed Amigo, and the cost is $5. The marginal cost of producing the the marginal product of labor because of.

The marginal private cost shows the cost associated to the firm in question. It is the marginal private cost that is used by business decision makers in their profit maximization goals.

Explain the Relationship Between the Marginal Product of Labor & Marginal Cost

Marginal social cost is similar to private cost in that it includes the cost of private enterprise but also any other cost or offsetting benefit to society to parties having no direct association with purchase or sale of the product. It incorporates all negative and positive externalitiesof both production and consumption.

Examples might include a social cost from air pollution affecting third parties or a social benefit from flu shots protecting others from infection. Externalities are costs or benefits that are not borne by the parties to the economic transaction. A producer may, for example, pollute the environment, and others may bear those costs.

A consumer may consume a good which produces benefits for society, such as education; because the individual does not receive all of the benefits, he may consume less than efficiency would suggest. Alternatively, an individual may be a smoker or alcoholic and impose costs on others. In these cases, production or consumption of the good in question may differ from the optimum level. Negative externalities of production[ edit ] Negative Externalities of Production Much of the time, private and social costs do not diverge from one another, but at times social costs may be either greater or less than private costs.

When marginal social costs of production are greater than that of the private cost function, we see the occurrence of a negative externality of production.

The Law of Diminishing Marginal Returns | Economics Help

Productive processes that result in pollution are a textbook example of production that creates negative externalities. Such externalities are a result of firms externalizing their costs onto a third party in order to reduce their own total cost.

As a result of externalizing such costs, we see that members of society will be negatively affected by such behavior of the firm. In this case, we see that an increased cost of production in society creates a social cost curve that depicts a greater cost than the private cost curve.

Marginal cost

At low production levels the APL tends to increase as additional labor is added. The primary reason for the increase is specialization and division of labor. Eventually the MPL reaches it maximum value at the point of diminishing returns.

marginal cost and product of labor relationship

Beyond this point MPL will decrease. Graphically, the APL curve can be derived from the total product curve by drawing secants from the origin that intersect cut the total product curve. The slope increases until the line reaches a point of tangency with the total product curve. This point marks the maximum average product of labor.

It also marks the point where MPL which is the slope of the total product curve [8] equals the APL the slope of the secant.

Explain the Relationship Between the Marginal Product of Labor & Marginal Cost | Bizfluent

Diminishing marginal returns[ edit ] The falling MPL is due to the law of diminishing marginal returns. The law states, "as units of one input are added with all other inputs held constant a point will be reached where the resulting additions to output will begin to decrease; that is marginal product will decline.

The key factor is that the variable input is being changed while all other factors of production are being held constant.

marginal cost and product of labor relationship

Marginal Cost and Marginal Product This diagram displays the marginal product and marginal cost for the production of Wacky Willy Stuffed Amigos those cute and cuddly armadillos, tarantulas, scorpions, and rattlesnakes.

The top panel presents the marginal product of the variable input used to produced Stuffed Amigos. The bottom panel contains the marginal cost of producing Stuffed Amigos. The marginal product curve in the upper panel has a distinctive hump-shape, with marginal product rising, reaching a peak, then falling.

marginal cost and product of labor relationship

The rising portion of the marginal product curve is the result of increasing marginal returns. The falling portion is attributable to decreasing marginal returns, and in particular, the law of diminishing marginal returns. The marginal cost curve in the lower panel has a distinctive U-shape, with marginal cost falling, reaching a minimum, then rising.

The falling portion of the marginal product curve is the result of increasing marginal returns. The rising portion is attributable to decreasing marginal returns, and in particular, the law of diminishing marginal returns.

The marginal cost curve can be thought of as something of a "reflection" of the marginal product curve. This reflection is not a perfect image, but it captures the essence of the shape.