Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 6] THEORY OF PRODUCTION 129
6.2 (a) On the same set of axes, draw the TP, AP L , and MP L curves of Problem 6.1 as smooth curves (b)
Explain the shape of the AP L and MP L curves in part (a) in terms of the shape of the TP curve.
Fig. 6-9
(a)
(b)
See Fig. 6-9. These smooth curves are the typical textbook TP, AP, and MP curves and are based on the
assumption that inputs are perfectly divisible.
The slope of a line from the origin to a point on the TP curve rises up to point B and declines afterward. Thus,
the AP L curve rises up to point B 0 and declines thereafter. Starting from the origin, the slope of the TP curve
(the MP L ) rises up to point A (the point of inflection), then declines but remains positive up to point C. At point
C (the maximum point of the TP curve), the slope of the TP curve (the MP L ) is zero. Past point C, the slope of
the TP curve (the MP L ) is negative. At point B, the slope of the TP curve (the MP L ) is equal to the slope of a
line from the origin to the TP curve (the AP L ).
6.3 (a) In terms of “labor” and “land,” what does the law of diminishing returns state?
(b) Determine where the law of diminishing returns starts operating in Fig. 6-9.
(a)
(b)
As more units of labor per unit of time are used to cultivate a fixed amount of land, after a point the MP L will
necessarily decline. This is one of the most important laws of economics and is referred to as the law of diminishing
returns. Note that to observe the law of diminishing returns, one input (either land or labor) must be kept
fixed while the other input is varied. Technology is also assumed to remain constant.
The law of diminishing returns begins to operate at point A 0 in Fig. 6-9, where the MP L starts declining. To the
left of point A 0 , labor is used too sparsely on one acre of land, and so we get increasing rather than diminishing
returns to labor (the variable factor). (Do not confuse “increasing returns,” which is a short-run concept, with
“increasing returns to scale,” which is a long-run concept.)
6.4 Define the three stages of production for labor shown in Fig. 6-9.
Fig. 6-10