5 Steps to a 5 AP Microeconomics, 2014-2015 Edition

function takes inputs and creates output. In a production function that uses only labor
(L) and capital (K):

Fixed and Variable Inputs
The short run is a period of time too brief to change the plant capacity. This implies that
some production inputs cannot be changed in the short run. These are fixed inputs. During
the short run, firms can adjust production to meet changes in demand for their output.
This implies that some inputs are variable inputs. Using only labor and capital, we assume
that labor can be changed in the short run, but capital (i.e., the plant capacity) is fixed.

Short-Run Production Measures
By its very nature, production lends itself to be quantified, and as a result, you need to study
these three production measures. To keep it simple, capital is assumed to be fixed while
labor can be changed to produce more or less output.

1. Total product (TPL) of laboris the total quantity, or total output, of a good produced
   at each quantity of labor employed.


2. Marginal product (MPL) of laboris the change in total product resulting from a change in
   the labor input. MPL=DTPL/DL. If labor is changing one unit at a time, MPL=DTPL.


3. Average product (APL) of labor is also a measure of average labor productivity and is
   total product divided by the amount of labor employed: APL=TPL/L.

As you can see, MPLand APLare both derived from TPL. It is useful to see how these
three measures are related with a numerical example.

Example:

In the production period of a month, Molly’s lemonade stand combines variable

inputs of her labor (and the raw materials) to the fixed inputs of her table and

her license to operate. Molly adds employees to her plant and forecasts the

change in production (cups per day) in Table 8.2.

Table 8.2

UNITS OF TOTAL PRODUCT MARGINAL PRODUCT AVERAGE PRODUCT

LABOR (TPL)(MPL) (APL)

00 cups

155 - 0 = 55 /1 = 5

2 15 10 7.5

33 0 1 5 10

44 0 1 0 10

545 5 9

640 - 5 6.67

730 - 10 4.29

The Firm, Profit, and the Costs of Production ‹ 105

= Output

Production

Function

Capital

Labor