firm decisions - based of benefits on incremental or average basis
- total output - can actually decrease after too many workers are employed
- too many workers >> workers get in each others' way, entrepeneurship decreases
- average product of labor (APL) = Q/L
- output per unit of labor
- slope of line from origin to point on total product curve
- marginal product of labor (MPL) = DQ/DL
- derivative of the production function w/ respect to labor
- additional output produced w/ increase in labor by 1 unit
- marginal output less than 0 >> decreasing total output
- marginal output less than average output >> decreasing average output
- marginal output intersects average output at max average output
- graph not drawn to scale
- total output curve
- average product of labor curve
- marginal product of labor curve
- when marginal product curve crosses the x-axis (becomes negative), total output curve reaches a maximum
- at intersection of marginal product and average product, average product is at a maximum
law of diminishing marginal returns - additions from input to output gradually decrease
- increasing input has more effect on output early on than later
- small labor force >> adding labor affects output considerably
- more workers assigned to specialized tasks, etc
- larger labor force after adding labor >> adding additional labor doesn't affect output as much as before
- too many workers >> less efficient, more willing to slack
- technology improvements >> shifts total output curve >> increases labor productivity as a whole
- note however, that diminishing marginal returns still exist
- existence of a max total ouput proves existence of diminishing marginal returns
- increasing labor productivity >> increases capital flow >> increases standard of living
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