{"id":6736,"date":"2018-02-16T04:52:20","date_gmt":"2018-02-16T04:52:20","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-microeconomics\/?post_type=chapter&#038;p=6736"},"modified":"2018-06-11T18:21:00","modified_gmt":"2018-06-11T18:21:00","slug":"the-production-function","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cuny-kbcc-microeconomics\/chapter\/the-production-function\/","title":{"raw":"The Production Function","rendered":"The Production Function"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Explain the concept of a production function<\/li>\r\n \t<li>Differentiate between fixed and variable inputs<\/li>\r\n \t<li>Differentiate between total and marginal product<\/li>\r\n \t<li>Describe diminishing marginal productivity<\/li>\r\n<\/ul>\r\n<\/div>\r\n<p id=\"eip-646\">We can summarize the ideas so far in terms of a\u00a0production function, a mathematical expression or equation that explains the relationship between a firm's inputs and its outputs:<\/p>\r\n<p style=\"text-align: center;\">[latex]Q=f\\left[NR\\text{,}L\\text{,}K\\text{,}t\\text{,}E\\right][\/latex]<\/p>\r\n<p style=\"text-align: left;\">A production is purely an engineering concept. If you plug in the amount of labor, capital and other inputs the firm is using, the production function tells how much output will be produced by those inputs.\u00a0Production functions are specific to the product. Different products have different production functions. The amount of labor a farmer uses to produce a bushel of corn is likely different than that required to produce an automobile. Firms in the same industry may have somewhat different production functions, since each firm may produce a little differently. One pizza restaurant may make its own dough and sauce, while another may buy those pre-made. A sit-down pizza restaurant probably uses more labor (to handle table service) than a purely take-out restaurant. We can describe inputs as either\u00a0fixed\u00a0or\u00a0variable.<\/p>\r\n<p id=\"eip-687\"><strong>Fixed inputs<\/strong>\u00a0are those that can\u2019t easily be increased or decreased in a short period of time. In the pizza example, the building is a fixed input. Once the entrepreneur signs the lease, he or she is stuck in the building until the lease expires. Fixed inputs define the firm\u2019s maximum output capacity. This is analogous to the potential real GDP shown by society\u2019s production possibilities curve, i.e. the maximum quantities of outputs a society can produce at a given time with its available resources. Fixed inputs do not change as output changes.<\/p>\r\n<p id=\"eip-446\"><strong>Variable inputs<\/strong>\u00a0are those that can easily be increased or decreased in a short period of time. The pizzaiolo can order more ingredients with a phone call, so ingredients would be variable inputs. The owner could hire a new person to work the counter pretty quickly as well. Variable inputs increase or decrease as output changes.<\/p>\r\n<p id=\"eip-480\">Economists often use a short-hand form for the production function:<\/p>\r\n<p style=\"text-align: center;\">[latex]Q=f\\left[L\\text{,}K\\right][\/latex]<\/p>\r\nwhere L represents all the variable inputs, and K represents all the fixed inputs.\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7977\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7979\r\n\r\n<\/div>\r\nEconomists also differentiate between short and long run production. The\u00a0<strong>short run<\/strong>\u00a0is the period of time during which at least some factors of production are fixed. During the period of the pizza restaurant lease, the pizza restaurant is operating in the short run, because it is limited to using the current building\u2014the owner can\u2019t choose a larger or smaller building. The\u00a0<strong>long run<\/strong>\u00a0is the period of time during which all factors are variable. Once the lease expires for the pizza restaurant, the shop owner can move to a larger or smaller place.\r\n\r\nNote that there is another important distinction between fixed and variable inputs. In the short run, since the firm's fixed inputs are fixed, the only way to vary a firm's output is by changing its variable inputs. Let\u2019s explore production in the short run using a specific example: tree cutting (for lumber) with a two-person crosscut saw.\r\n\r\n[caption id=\"attachment_6760\" align=\"aligncenter\" width=\"640\"]<img class=\"wp-image-6760 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2042\/2018\/02\/16151102\/CNX_Econ2e_C07_001.jpg\" alt=\"Image of two men at a crosscut saw event.\" width=\"640\" height=\"480\" \/> <strong>Figure 1.<\/strong> Production in the short run may be explored through the example of lumberjacks using a two-person saw. (Credit: Wknight94\/Wikimedia Commons)[\/caption]\r\n<p id=\"eip-444\">Since by definition capital is fixed in the short run, our production function becomes<\/p>\r\n<p style=\"text-align: center;\">[latex]Q=f\\left[L\\text{,}\\stackrel{-}{K}\\right]\\text{or }Q=f\\left[L\\right][\/latex]<\/p>\r\n<p id=\"eip-839\">This equation simply indicates that since capital is fixed, then changing the amount of output (e.g. trees cut down per day) depends only on changing the amount of labor employed (e.g. number of lumberjacks working). We can express this production function numerically as\u00a0Table 1 below shows. You can also see it graphically in Figure 2a.<\/p>\r\n\r\n<table id=\"eip-600\" summary=\"Increased quantities of lumberjacks result in more trees cut. One lumberjack cuts down four trees, with marginal product (abbreviated M P) of four. Two lumberjacks cut ten trees, with a marginal product of six. Three lumberjacks cut twelve trees, with a marginal product of 2. Four lumberjacks cut thirteen trees, with a marginal product of one. Five lumberjacks also cut thirteen trees, with a marginal product of zero.\"><caption>Table 1. Short Run Production Function for Trees<\/caption>\r\n<tbody>\r\n<tr>\r\n<td># Lumberjacks<\/td>\r\n<td>1<\/td>\r\n<td>2<\/td>\r\n<td>3<\/td>\r\n<td>4<\/td>\r\n<td>5<\/td>\r\n<\/tr>\r\n<tr>\r\n<td># Trees (TP)<\/td>\r\n<td>4<\/td>\r\n<td>10<\/td>\r\n<td>12<\/td>\r\n<td>13<\/td>\r\n<td>13<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>MP<\/td>\r\n<td>4<\/td>\r\n<td>6<\/td>\r\n<td>2<\/td>\r\n<td>1<\/td>\r\n<td>0<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"591\"]<img src=\"https:\/\/cnx.org\/resources\/eb3b7c14ef298fb445de13c6b13dc177ab07910b\/CNX_Econ2e_C7_004.jpg\" alt=\"Figure 2a is a graph showing the short run total product for trees. The x-axis is the number of lumberjacks and is numbered one through five. The y-axis is the number of trees and is numbered zero through sixteen in increments of four. The curve begins at the left of the graph, at coordinates indicating one lumberjack and four trees. It curves upward as it moves to the right, as the number of lumberjacks increases. It levels off at thirteen. Figure 7.5b is a graph showing the marginal product for trees. The x-axis is the number of lumberjacks and is numbered one through five. The y-axis is the marginal product and is numbered zero through eight in increments of two. The curve begins at the left of the graph, at coordinates indicating one lumberjack and a marginal product of four. It then increases (moves up) to a marginal product of six when the lumberjacks increase to two, but then proceeds downward and to the right as the number of lumberjacks increases, ultimately reaching zero when the number of lumberjacks equals five. \" width=\"591\" height=\"826\" \/> <strong>Figure 2.<\/strong>\u00a0<strong>Total Product and Marginal Product Curves.<\/strong> The short run total product for trees (top) shows the amount of output produced with fixed capital. In this example, one lumberjack using a two-person saw can cut down four trees in an hour. Three lumberjacks using a two-person saw can cut down twelve trees in an hour. The marginal product for trees (bottom) shows the additional output created by one more lumberjack.[\/caption]\r\n<p id=\"eip-711\">Note that we have introduced some new language. We also call Output (Q) Total Product (TP), which means the amount of output produced with a given amount of labor and a fixed amount of capital. In this example, one lumberjack using a two-person saw can cut down four trees in an hour. Two lumberjacks using a two-person saw can cut down ten trees in an hour.<\/p>\r\n\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7980\r\n\r\n<\/div>\r\n<p id=\"eip-196\">We should also introduce a critical concept:\u00a0marginal product. <strong>Marginal product<\/strong> is the additional output of one more worker. Mathematically, Marginal Product is the change in total product divided by the change in labor:\u00a0[latex]MP=\\Delta TP\/\\Delta L[\/latex] In the table above, since 0 workers produce 0 trees, the marginal product of the first worker is four trees per day, but the marginal product of the second worker is six trees per day. Why might that be the case? It\u2019s because of the nature of the capital the workers are using. A two-person saw works much better with two persons than with one. Suppose we add a third lumberjack to the story. What will that person\u2019s marginal product be? What will that person contribute to the team? Perhaps he or she can oil the saw's teeth to keep it sawing smoothly or he or she could bring water to the two people sawing.<\/p>\r\nWhat you see in the table is a critically important conclusion about production in the short run: it may be that as we add workers, the marginal product increases at first, but sooner or later additional workers will have decreasing marginal product. In fact, there may eventually be no effect or a negative effect on output. This is called the\u00a0<strong>Law of Diminishing Marginal Product<\/strong>\u00a0and it\u2019s a characteristic of production in the short run. Diminishing marginal productivity is very similar to the concept of diminishing marginal utility that we learned about in the chapter on consumer choice. Both concepts are examples of the more general concept of diminishing marginal returns. Why does diminishing marginal productivity occur? It\u2019s because of fixed capital. We will see this more clearly when we discuss production in the long run.\r\n<p id=\"eip-676\">We can show these concepts graphically, as you can see in Figure 2 above. Figure 3 shows the more general cases of total product and marginal product curves.<\/p>\r\n\r\n<figure id=\"fs-id1169819510579\">\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"622\"]<img src=\"https:\/\/cnx.org\/resources\/a74a0d92b6ac7f6bab6c7a0378617566094ce75e\/CNX_Econ2e_C7_005.jpg\" alt=\"The graph shows the data from figure 3. The x-axis is the change in labor, and is labelled L. The y-axis is the change in total product, and is labelled TP. The curve in the graph starts relatively steeply, and levels off after time. The graph shows the more general cases of total product and marginal product curves. The x-axis is labor, and is labelled L. The y-axis is marginal product, and is labeled MP. The graph initially curves upward, then peaks before continuning in a downward direction until it tails off near the x-axis, showing nearly zero marginal product as labor increases. \" width=\"622\" height=\"719\" \/> <strong>Figure 3.\u00a0Total Product and Marginal Product Curves.<\/strong> The top graph shows the general shape of a total product curve, with total product initially increasing, then tapering off due to the law of diminishing marginal product. The bottom graph shows how marginal product falls with additional labor.[\/caption]<\/figure>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7981\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7982\r\n\r\n<\/div>\r\n<div><\/div>\r\n<div class=\"textbox examples\">\r\n<h3>Watch It<\/h3>\r\nWatch this video to review all of the production function and to see an example of the law of diminishing marginal product. Dr. McGlasson wants to hire students for her company to make \"I love economics\" signs, but she must consider how much output she can gain with each additional employee.\r\n<iframe src=\"https:\/\/www.youtube.com\/embed\/rnEFtyMzjOo?rel=0&amp;showinfo=0\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nThese questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.\r\n\r\n[ohm_question]154922-154927[\/ohm_question]\r\n\r\n<\/div>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7780\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Glossary<\/h3>\r\n<dl id=\"fs-idp34356896\">\r\n \t<dt><\/dt>\r\n \t<dt>[glossary-page][glossary-term]factors of production (or inputs):[\/glossary-term]\r\n[glossary-definition]resources that firms use to produce their products, for example, labor and capital[\/glossary-definition][glossary-term]firm:[\/glossary-term]\r\n[glossary-definition]an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.[\/glossary-definition][glossary-term]fixed inputs:[\/glossary-term]\r\n[glossary-definition]factors of production that can\u2019t be easily increased or decreased in a short period of time[\/glossary-definition][glossary-term]long run: [\/glossary-term]\r\n[glossary-definition]period of time during which all of the firm\u2019s inputs are variable[\/glossary-definition][glossary-term]production:[\/glossary-term]\r\n[glossary-definition]the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs[\/glossary-definition][glossary-term]production function:[\/glossary-term]\r\n[glossary-definition]mathematical equation that tells how much output a firm can produce with given amounts of inputs[\/glossary-definition][glossary-term]short run:[\/glossary-term]\r\n[glossary-definition]period of time during which at least one or more of the firm\u2019s inputs is fixed[\/glossary-definition][glossary-term]variable inputs:[\/glossary-term]\r\n[glossary-definition]factors of production that a firm can easily increase or decrease in a short period of time[\/glossary-definition]\r\n[\/glossary-page]<\/dt>\r\n<\/dl>\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Explain the concept of a production function<\/li>\n<li>Differentiate between fixed and variable inputs<\/li>\n<li>Differentiate between total and marginal product<\/li>\n<li>Describe diminishing marginal productivity<\/li>\n<\/ul>\n<\/div>\n<p id=\"eip-646\">We can summarize the ideas so far in terms of a\u00a0production function, a mathematical expression or equation that explains the relationship between a firm&#8217;s inputs and its outputs:<\/p>\n<p style=\"text-align: center;\">[latex]Q=f\\left[NR\\text{,}L\\text{,}K\\text{,}t\\text{,}E\\right][\/latex]<\/p>\n<p style=\"text-align: left;\">A production is purely an engineering concept. If you plug in the amount of labor, capital and other inputs the firm is using, the production function tells how much output will be produced by those inputs.\u00a0Production functions are specific to the product. Different products have different production functions. The amount of labor a farmer uses to produce a bushel of corn is likely different than that required to produce an automobile. Firms in the same industry may have somewhat different production functions, since each firm may produce a little differently. One pizza restaurant may make its own dough and sauce, while another may buy those pre-made. A sit-down pizza restaurant probably uses more labor (to handle table service) than a purely take-out restaurant. We can describe inputs as either\u00a0fixed\u00a0or\u00a0variable.<\/p>\n<p id=\"eip-687\"><strong>Fixed inputs<\/strong>\u00a0are those that can\u2019t easily be increased or decreased in a short period of time. In the pizza example, the building is a fixed input. Once the entrepreneur signs the lease, he or she is stuck in the building until the lease expires. Fixed inputs define the firm\u2019s maximum output capacity. This is analogous to the potential real GDP shown by society\u2019s production possibilities curve, i.e. the maximum quantities of outputs a society can produce at a given time with its available resources. Fixed inputs do not change as output changes.<\/p>\n<p id=\"eip-446\"><strong>Variable inputs<\/strong>\u00a0are those that can easily be increased or decreased in a short period of time. The pizzaiolo can order more ingredients with a phone call, so ingredients would be variable inputs. The owner could hire a new person to work the counter pretty quickly as well. Variable inputs increase or decrease as output changes.<\/p>\n<p id=\"eip-480\">Economists often use a short-hand form for the production function:<\/p>\n<p style=\"text-align: center;\">[latex]Q=f\\left[L\\text{,}K\\right][\/latex]<\/p>\n<p>where L represents all the variable inputs, and K represents all the fixed inputs.<\/p>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7977\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7977&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7977\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p>\t<iframe id=\"lumen_assessment_7979\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7979&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7979\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<p>Economists also differentiate between short and long run production. The\u00a0<strong>short run<\/strong>\u00a0is the period of time during which at least some factors of production are fixed. During the period of the pizza restaurant lease, the pizza restaurant is operating in the short run, because it is limited to using the current building\u2014the owner can\u2019t choose a larger or smaller building. The\u00a0<strong>long run<\/strong>\u00a0is the period of time during which all factors are variable. Once the lease expires for the pizza restaurant, the shop owner can move to a larger or smaller place.<\/p>\n<p>Note that there is another important distinction between fixed and variable inputs. In the short run, since the firm&#8217;s fixed inputs are fixed, the only way to vary a firm&#8217;s output is by changing its variable inputs. Let\u2019s explore production in the short run using a specific example: tree cutting (for lumber) with a two-person crosscut saw.<\/p>\n<div id=\"attachment_6760\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6760\" class=\"wp-image-6760 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/2042\/2018\/02\/16151102\/CNX_Econ2e_C07_001.jpg\" alt=\"Image of two men at a crosscut saw event.\" width=\"640\" height=\"480\" \/><\/p>\n<p id=\"caption-attachment-6760\" class=\"wp-caption-text\"><strong>Figure 1.<\/strong> Production in the short run may be explored through the example of lumberjacks using a two-person saw. (Credit: Wknight94\/Wikimedia Commons)<\/p>\n<\/div>\n<p id=\"eip-444\">Since by definition capital is fixed in the short run, our production function becomes<\/p>\n<p style=\"text-align: center;\">[latex]Q=f\\left[L\\text{,}\\stackrel{-}{K}\\right]\\text{or }Q=f\\left[L\\right][\/latex]<\/p>\n<p id=\"eip-839\">This equation simply indicates that since capital is fixed, then changing the amount of output (e.g. trees cut down per day) depends only on changing the amount of labor employed (e.g. number of lumberjacks working). We can express this production function numerically as\u00a0Table 1 below shows. You can also see it graphically in Figure 2a.<\/p>\n<table id=\"eip-600\" summary=\"Increased quantities of lumberjacks result in more trees cut. One lumberjack cuts down four trees, with marginal product (abbreviated M P) of four. Two lumberjacks cut ten trees, with a marginal product of six. Three lumberjacks cut twelve trees, with a marginal product of 2. Four lumberjacks cut thirteen trees, with a marginal product of one. Five lumberjacks also cut thirteen trees, with a marginal product of zero.\">\n<caption>Table 1. Short Run Production Function for Trees<\/caption>\n<tbody>\n<tr>\n<td># Lumberjacks<\/td>\n<td>1<\/td>\n<td>2<\/td>\n<td>3<\/td>\n<td>4<\/td>\n<td>5<\/td>\n<\/tr>\n<tr>\n<td># Trees (TP)<\/td>\n<td>4<\/td>\n<td>10<\/td>\n<td>12<\/td>\n<td>13<\/td>\n<td>13<\/td>\n<\/tr>\n<tr>\n<td>MP<\/td>\n<td>4<\/td>\n<td>6<\/td>\n<td>2<\/td>\n<td>1<\/td>\n<td>0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<div style=\"width: 601px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/cnx.org\/resources\/eb3b7c14ef298fb445de13c6b13dc177ab07910b\/CNX_Econ2e_C7_004.jpg\" alt=\"Figure 2a is a graph showing the short run total product for trees. The x-axis is the number of lumberjacks and is numbered one through five. The y-axis is the number of trees and is numbered zero through sixteen in increments of four. The curve begins at the left of the graph, at coordinates indicating one lumberjack and four trees. It curves upward as it moves to the right, as the number of lumberjacks increases. It levels off at thirteen. Figure 7.5b is a graph showing the marginal product for trees. The x-axis is the number of lumberjacks and is numbered one through five. The y-axis is the marginal product and is numbered zero through eight in increments of two. The curve begins at the left of the graph, at coordinates indicating one lumberjack and a marginal product of four. It then increases (moves up) to a marginal product of six when the lumberjacks increase to two, but then proceeds downward and to the right as the number of lumberjacks increases, ultimately reaching zero when the number of lumberjacks equals five.\" width=\"591\" height=\"826\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 2.<\/strong>\u00a0<strong>Total Product and Marginal Product Curves.<\/strong> The short run total product for trees (top) shows the amount of output produced with fixed capital. In this example, one lumberjack using a two-person saw can cut down four trees in an hour. Three lumberjacks using a two-person saw can cut down twelve trees in an hour. The marginal product for trees (bottom) shows the additional output created by one more lumberjack.<\/p>\n<\/div>\n<p id=\"eip-711\">Note that we have introduced some new language. We also call Output (Q) Total Product (TP), which means the amount of output produced with a given amount of labor and a fixed amount of capital. In this example, one lumberjack using a two-person saw can cut down four trees in an hour. Two lumberjacks using a two-person saw can cut down ten trees in an hour.<\/p>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7980\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7980&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7980\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<p id=\"eip-196\">We should also introduce a critical concept:\u00a0marginal product. <strong>Marginal product<\/strong> is the additional output of one more worker. Mathematically, Marginal Product is the change in total product divided by the change in labor:\u00a0[latex]MP=\\Delta TP\/\\Delta L[\/latex] In the table above, since 0 workers produce 0 trees, the marginal product of the first worker is four trees per day, but the marginal product of the second worker is six trees per day. Why might that be the case? It\u2019s because of the nature of the capital the workers are using. A two-person saw works much better with two persons than with one. Suppose we add a third lumberjack to the story. What will that person\u2019s marginal product be? What will that person contribute to the team? Perhaps he or she can oil the saw&#8217;s teeth to keep it sawing smoothly or he or she could bring water to the two people sawing.<\/p>\n<p>What you see in the table is a critically important conclusion about production in the short run: it may be that as we add workers, the marginal product increases at first, but sooner or later additional workers will have decreasing marginal product. In fact, there may eventually be no effect or a negative effect on output. This is called the\u00a0<strong>Law of Diminishing Marginal Product<\/strong>\u00a0and it\u2019s a characteristic of production in the short run. Diminishing marginal productivity is very similar to the concept of diminishing marginal utility that we learned about in the chapter on consumer choice. Both concepts are examples of the more general concept of diminishing marginal returns. Why does diminishing marginal productivity occur? It\u2019s because of fixed capital. We will see this more clearly when we discuss production in the long run.<\/p>\n<p id=\"eip-676\">We can show these concepts graphically, as you can see in Figure 2 above. Figure 3 shows the more general cases of total product and marginal product curves.<\/p>\n<figure id=\"fs-id1169819510579\">\n<div style=\"width: 632px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/cnx.org\/resources\/a74a0d92b6ac7f6bab6c7a0378617566094ce75e\/CNX_Econ2e_C7_005.jpg\" alt=\"The graph shows the data from figure 3. The x-axis is the change in labor, and is labelled L. The y-axis is the change in total product, and is labelled TP. The curve in the graph starts relatively steeply, and levels off after time. The graph shows the more general cases of total product and marginal product curves. The x-axis is labor, and is labelled L. The y-axis is marginal product, and is labeled MP. The graph initially curves upward, then peaks before continuning in a downward direction until it tails off near the x-axis, showing nearly zero marginal product as labor increases.\" width=\"622\" height=\"719\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 3.\u00a0Total Product and Marginal Product Curves.<\/strong> The top graph shows the general shape of a total product curve, with total product initially increasing, then tapering off due to the law of diminishing marginal product. The bottom graph shows how marginal product falls with additional labor.<\/p>\n<\/div>\n<\/figure>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7981\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7981&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7981\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><br \/>\n\t<iframe id=\"lumen_assessment_7982\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7982&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7982\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<div><\/div>\n<div class=\"textbox examples\">\n<h3>Watch It<\/h3>\n<p>Watch this video to review all of the production function and to see an example of the law of diminishing marginal product. Dr. McGlasson wants to hire students for her company to make &#8220;I love economics&#8221; signs, but she must consider how much output she can gain with each additional employee.<br \/>\n<iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/rnEFtyMzjOo?rel=0&amp;showinfo=0\" width=\"800\" height=\"470\" frameborder=\"0\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.<\/p>\n<p><iframe loading=\"lazy\" id=\"ohm154922\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=154922-154927&theme=oea&iframe_resize_id=ohm154922&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n<p>\t<iframe id=\"lumen_assessment_7780\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7780&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7780\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<div class=\"textbox learning-objectives\">\n<h3>Glossary<\/h3>\n<dl id=\"fs-idp34356896\">\n<dt><\/dt>\n<dt>\n<div class=\"titlepage\">\n<dl>\n<dt>factors of production (or inputs):<\/dt>\n<dd>resources that firms use to produce their products, for example, labor and capital<\/dd>\n<dt>firm:<\/dt>\n<dd>an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.<\/dd>\n<dt>fixed inputs:<\/dt>\n<dd>factors of production that can\u2019t be easily increased or decreased in a short period of time<\/dd>\n<dt>long run: <\/dt>\n<dd>period of time during which all of the firm\u2019s inputs are variable<\/dd>\n<dt>production:<\/dt>\n<dd>the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs<\/dd>\n<dt>production function:<\/dt>\n<dd>mathematical equation that tells how much output a firm can produce with given amounts of inputs<\/dd>\n<dt>short run:<\/dt>\n<dd>period of time during which at least one or more of the firm\u2019s inputs is fixed<\/dd>\n<dt>variable inputs:<\/dt>\n<dd>factors of production that a firm can easily increase or decrease in a short period of time<\/dd>\n<\/dl>\n<\/div>\n<\/dt>\n<\/dl>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-6736\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Modification, adaptation, and original content. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Production in the Short Run. <strong>Provided by<\/strong>: OpenStax College. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/cnx.org\/contents\/XAl2LLVA@7.23:mS_p15F-@11\/Production-in-the-Short-Run\">https:\/\/cnx.org\/contents\/XAl2LLVA@7.23:mS_p15F-@11\/Production-in-the-Short-Run<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Episode 20: Producer Theory. <strong>Authored by<\/strong>: Dr. Mary McGlasson. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=rnEFtyMzjOo\">https:\/\/www.youtube.com\/watch?v=rnEFtyMzjOo<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":29,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Production in the Short Run\",\"author\":\"\",\"organization\":\"OpenStax 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