Question

Test II. Compute the MP, AP and identify the stage in production Marginal Product Average Product Stage of Production Output (in million units Labor (in thousand man hours) 2 .02 .35 .78 .78 .65 .58 .02 31 35 40 .015 .01

Answer 1

MP = Difference in output / Difference in labor

AP = Output / Labor

Labor	Output	MP	AP	Stage
2	.02	(.02 – 0) / (2 – 0) = 0.01	.02/2 = 0.01	Increasing
7	.35	(.35 – .02) / (7 – 2) = 0.066	.35/7 = 0.05	Increasing
9	.78	(.78 – .35) / (9 – 7) = 0.215	0.086	Increasing
15	.78	(.78 – .78) / (15 – 9) = 0	0.052	Decreasing
22	.65	(.65 – .78) / (22 – 15) = -0.018	0.029	Negative
27	.58	(.58 – .65) / (27 – 22) = -0.014	0.021	Negative
31	.02	(.02 – .58) / (31 – 27) = -0.14	0.000	Negative
35	.015	(.015 – .02) / (35 – 31) = -0.001	0.000	Negative
40	.01	(.01 – .015) / (40 – 35) = -0.001	0.000	Negative

There are three stages of production:

Increasing: it happens when MP is increasing

Decreasing: it happens when MP is decreasing but it is positive

Negative: it happens when MP becomes negative