Tuesday 2 June 2015

What are some numerical examples of how the marginal product curve is u-shaped?

In the link below, you can find a numerical example of how the marginal product curve is shaped like an upside-down “U.”  In this answer, I will give a second example and explain why the numbers are as they are.

Let us imagine that Kevin owns a pizza restaurant.  In the short run, Kevin has a fixed amount of capital.  That means that he only has a given amount of space, a given number of ovens, and a given number of things like pans in which to bake the pizzas.  However, Kevin can hire different numbers of people to work in his restaurant.  The number of people he hires will be shown along the horizontal axis of a marginal product curve.


Let us say that Kevin only hires one worker, who has to do all the work by herself.  She can produce 100 pizzas per week.  She has to take orders, make the pizzas, serve the customers, take payment, and do all the other tasks needed to have a pizza restaurant.  The marginal product of hiring this first worker is 100 pizzas per week.


 Now Kevin hires another worker.  Now, each worker can specialize.  Perhaps the first worker can specialize in actually making the pizzas and cleaning up afterward while the second worker takes care of taking orders, serving customers, and taking payments.  Now, the restaurant produces 250 pizzas in a week and the marginal product of the second worker is 150 pizzas per week.  The marginal product goes up for workers 1 and 2.


Then Kevin hires another worker.  This worker works in the kitchen, so now the restaurant can produce more pizzas.  Let us say that there are two ovens, which means that each kitchen worker can make pizzas for one oven.  However, this is not as big of a help as the second worker.  Worker #1 was able to make a pizza, put it in one oven, then make another pizza while the first was baking and put it in the second oven.  Having a second kitchen worker helps, but not as much as adding a worker to take care of the customers.  Now the restaurant produces 350 pizzas per week and the marginal product of the third worker was 100 pizzas.  We can see that the marginal product is now going down.


Finally, Kevin hires a fourth worker.  This one busses tables and does dishes.  Now the other three have easier jobs because they do not have to clean up, but this only frees up a little bit of their time.  The restaurant produces 400 pizzas per week and the marginal product of the third worker was 50 pizzas.


If we graph these changes, we will see that the marginal product goes up at first and then goes down, making a graph that looks something like an inverted “U.”  This happens because the marginal value of adding more workers eventually goes down as more and more workers are added to work on a fixed amount of capital.

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