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

CHAP. 6] THEORY OF PRODUCTION 133
(a)
The producer will not operate in stage I for labor (¼stage III for land) because the MP Land is negative. The
producer will not operate in stage III for labor because the MP Labor is negative. The producer will produce
in stage II because the MP of labor and land are both positive (even if declining).
(b) Within stage II, the producer will produce at the point where MP Labor /P Labor ¼ MP Land /P Land .
(c)
If P Land ¼ 0, the producer will want to produce at the point of greatest average efficiency for labor, and so he
or she will produce at the beginning of stage II for labor (where the AP Labor is maximum and the MP Land ¼ 0).
If the P Labor ¼ 0, the producer will produce at the end of stage II for labor (where the MP Labor ¼ 0 and the
AP Land is maximum). If P Labor ¼ P Land , the producer will produce at the point (within stage II) where the
MP Labor and the MP Land curves intersect. The higher the price of labor in relation to the price of land,
the closer to the beginning of stage II for labor will the producer operate. The higher the price of land in
relation to the price of labor, the closer to the beginning of stage II for land (which is the end of stage II
for labor) will the producer operate.
6.10 From Table 6.8, (a) find the AP and the MP of labor and (b) plot the TP, the AP, and the MP of labor,
(c) How is the graph different from Fig. 6-12?
Table 6.8
Land 1 1 1 1 1
Labor 1 2 3 4 5
TP Labor 10 18 24 28 30
(a) Table 6.9
Land Labor TP Labor AP Labor MP Labor
1 1 10 10 ...
1 2 18 9 8
1 3 24 8 6
1 4 28 7 4
1 5 30 6 2
(b)
Fig. 6-14
(c)
Fig. 6-14 shows only stage II. Stages I and III are missing. This may sometimes occur in the real world and if
often assumed in empirical work.