# Cost of Production

1 Explain the relationship between AP and MP. Be sure to use graphs to help support your answer.

a Explain the relationship between MP and TP when

b. TP has peaked

c. TP is declining

d. The MP is declining, but still positive.

e Suppose that 1 worker generates 8 units of output, 2 workers generate 20, 3 workers generate 35, 4 workers generate 45, and 5 workers generate 42 units out output.

a. Calculate the MP and the AP for each worker

b. At what point do diminishing returns set in? How would we know this had occurred?

3.Use the concept of economies and diseconmies of scale to explain the shape of a firm's long run ATC curve. What is the concept of minimum efficient scale? What bearing can the shape of the long run ATC curve have on the structure of an industry?

Explain the law of diminishing returns.

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#### Solution Preview

1 Explain the relationship between AP and MP. Be sure to use graphs to help support your answer.

AP is Average product, given by the formula AP = TP/Q, where TP is the Total Product function and Q is the number of units produced.

MP is the Marginal Product, given by . Thus AP is simply the ratio between TP and Q, whereas MP indicates the rate of change in TP with Q. Given a function for TP, graphs for AP and MP can be plotted.

a. Explain the relationship between MP and TP when

b. TP has peaked: Because MP is the derivative of TP, when TP is at its peak, MP will be zero.

c. TP ...

#### Solution Summary

The expert explains the relationship between AP and MP.