Page 95 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes TP, MP and AP of Labour
(1) (2) (3) (4) (5)
Labour Output or TP MP of Labour AP of Labour Output Elasticity
(No. of workers) of Labour
0 0 - - -
1 3 3 3 1
2 8 5 4 1.25
3 12 4 4 1
4 14 2 3.5 0.57
5 14 0 2.8 0
6 12 -2 2 -1

Marginal product (MP) of labour (MP ) is the change in total product or extra output per unit
L
change in labour used. Average product of labour (AP ) equals total product divided by the
L
quantity of labour used.

Output elasticity of labour (E ) measures the percentage change in output divided by percentage
L
change in quantity of labour used.

or

This means that from zero units of labour (and with K = 1), TP or output grows proportionally
to the growth in the labour input. For the second unit of labour E = 1.25 (that is, TP or output
L
grows more than proportionally to the increase in L), and so on.

Short Run and Long Run Production Function

The above features show that some quantity of both the inputs is required to produce a given
quantity of output. A two input long run production function for quantities of labour and capital
upto 10 units can be expressed as in Table 6.1.

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