Firms and production - Average product of labour and marginal product curves
3 important questions on Firms and production - Average product of labour and marginal product curves
What is the meaning and significance of average product of labor (\(AP_L\))?
- \(AP_L\): Output per worker on average.
- Indicates how productive labor is collectively.
- Increases up to \(L = 15\), then decreases.
- As more labor is added, looks at productivity across all workers.
- Falls when marginal product equals average product.
- Past this point, adding workers is less productive.
- Represents an overcrowding threshold.
What is the relationship between marginal product (MP) and average product (AP) when they are equal?
- MP and AP equality indicates maximum efficiency.
- Optimal L at this point is where MP = AP.
- Total product reaches its maximum when MP = AP.
- At this stage, AP is also maximized.
What happens at the optimal point where labor input L equals 15?
- When L = 15, MP equals 226.
- AP also equals 226 at this point.
- This stage is point B on the graph.
- Total product is most optimal.
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