production= converting inputs into output
DESCRIPTION
Analyzing Production Lets look at an example to show the relationship between inputs and outputsTRANSCRIPT
Production= Converting inputs into outputProduction= Converting inputs into output
WidgetWidgetProduction SimulationProduction Simulation
AnalyzingAnalyzingProductionProduction Lets look at an example to show the relationship
between inputs and outputs
Production SimulationOverview• The class will be divided into two firms. • There will be several rounds in which each firm will produce chains out
of paper. • Each round last exactly 2 minutes • Each firm is going to hire one more worker at the start of each round. Resources• 1 stapler, 1 scissors, 2 desks, and plenty of staples and paper Rules• Workers cannot stockpile slips of paper. No extras • Workers cannot cut more than one paper at a time • Workers can only add links to one side of the chain• Each link must pass inspection• If links don’t meet specifications they won’t countResponsibilities• The manager will hire the workers.• The inspector will check to make sure each product is made to
specifications
Production Simulation
Step 1: Cut paper down
the middle into two piece
Step 2: Fold piece down the
middle
Step 3: Wrap ends around and staple
Step 4: Add more links to one end
Complete the chart for your firm:Production Simulation
Number of Workers (inputs)
Total Product (output)
Marginal Product
0
1
2
3
4
5
6
7
Simulation DebriefKey Questions: 1. What happened to the number on links
produced as more workers were hired?2. Why can the second worker generate more
additional links than one worker working alone?
3. Why did the additional output for each worker eventually start to fall or even go negative?
4. What would happen to total output if every student in the room tried to make links given the limited resources?
Resources (Factors of Production)Fixed Resources-Resources that DON’T change with the amount producedWhat were the fixed resources?
Stapler, scissors, and tableVariable Resources-Resources that DO change as more or less is producedWhat were the variable resources?
Workers, paper, and staplesPractice - Identify 3 fixed and 3 variable resources for a pizza restaurant
Inputs and Outputs• To earn profit, firms must make products (output)• Inputs are the resources used to make outputs. • Input resources are also called FACTORS.
Marginal Product =Change in Total Product
Change in Inputs
•Marginal Product (MP)- the additional output generated by additional inputs (workers).
•Total Physical Product (TP)- total output or quantity produced
•Average Product (AP)- the output per unit of input
Average Product =Total Product
Units of Labor 8Copyright ACDC Leadership 2015
Production Analysis•What happens to the Total Product as you hire more workers?•What happens to marginal product as you hire more workers?•Why does this happen?
The Law of Diminishing Marginal ReturnsAs variable resources (workers) are added to fixed resources (machinery, tool, etc.), the additional output produced from each new worker will eventually fall.
Too many cooks in the kitchen!
Graphing Production Short Run Production Worksheet
Three Stages of Returns
Total Product
Quantity of Labor
Marginal and
Average Product
Quantity of Labor
Total Product
Stage I: Increasing Marginal ReturnsMP rising. TP increasing at an increasing rate.
Why? Specialization.
Average Product
11Marginal ProductCopyright ACDC Leadership 2015
Three Stages of Returns
Total Product
Quantity of Labor
Marginal and
Average Product
Quantity of Labor
Total Product
Stage II: Decreasing Marginal ReturnsMP Falling. TP increasing at a decreasing rate.
Why? Fixed Resources. Each worker adds less and less.
Average Product
12Marginal ProductCopyright ACDC Leadership 2015
Total Product
Quantity of Labor
Marginal and
Average Product
Quantity of Labor
Total Product
Stage III: Negative Marginal ReturnsMP is negative. TP decreasing. Workers get in each others way
Marginal Product
Average Product
13
Three Stages of Returns
Copyright ACDC Leadership 2015
With your partner calculate MP and AP then discuss what the graphs for TP, MP, and AP look like.
Remember quantity of workers goes on the x-axis.
# of Workers(Input)
Total Product(TP) PIZZAS
Marginal Product(MP)
Average Product(AP)
0 01 102 253 454 605 706 757 758 70
# of Workers(Input)
Total Product(TP) PIZZAS
Marginal Product(MP)
Average Product(AP)
0 0 - -1 10 102 25 153 45 204 60 155 70 106 75 57 75 08 70 -5
With your partner calculate MP and AP then discuss what the graphs for TP, MP, and AP look like.
Remember quantity of workers goes on the x-axis.
# of Workers(Input)
Total Product(TP) PIZZAS
Marginal Product(MP)
Average Product(AP)
0 0 - -1 10 10 102 25 15 12.53 45 20 154 60 15 155 70 10 146 75 5 12.57 75 0 10.718 70 -5 8.75
With your partner calculate MP and AP then discuss what the graphs for TP, MP, and AP look like.
Remember quantity of workers goes on the x-axis.
# of Workers(Input)
Total Product(TP) PIZZAS
Marginal Product(MP)
Average Product(AP)
0 0 - -1 10 10 102 25 15 12.53 45 20 154 60 15 155 70 10 146 75 5 12.57 75 0 10.718 70 -5 8.75
What are the three stages of returns?Can you identify each?
# of Workers(Input)
Total Product(TP)
PIZZAS
Marginal Product(MP)
Average Product(AP)
0 0 - -1 10 10 102 25 15 12.53 45 20 154 60 15 155 70 10 146 75 5 12.57 75 0 10.718 70 -5 8.75
Identify the three stages of returns
Increasing Increasing Marginal Marginal ReturnsReturns
Decreasing Decreasing Marginal Marginal ReturnsReturns
Negative Negative Marginal Marginal ReturnsReturns
0
10
20
30
Tota
l Pro
duct
, TP
1 2 3 4 5 6 7 8 9
20
10
Mar
gina
l Pro
duct
, MP
1 2 3 4 5 6 7 8 9
TP
MP
AP
IncreasingMarginalReturns
DiminishingMarginalReturns
NegativeMarginalReturns
Law of Diminishing Returns
8-19
Tony’s Hat Store Tony’s Hat Store WorksheetWorksheet
Copyright ACDC Leadership 2015
*Note to teacher* After you complete this activity, create this poster with the links and put it on the wall. This poster includes yellow links to show marginal product.
It shows the relationship between inputs and outputs and will be extremely beneficial as you teach production costs.