The short run production production assumes there is at least one fixed factor input
We use three measures of production and productivity:
Total product (total output). In manufacturing industries such as motor vehicles, it is straightforward to measure how much output is being produced. In service or knowledge industries, where output is less “tangible" it is harder to measure productivity.
Average product measures output per-worker-employed or output-per-unit of capital.
Marginal product is the change in output from increasing the number of workers used by one person, or by adding one more machine to the production process in the short run.
The length of time required for the long run varies from sector to sector. In the nuclear power industry for example, it can take many years to commission new nuclear power plant and capacity. This is something the UK government has to consider as it reviews our future sources of energy.
Short Run Production Function
What might cause marginal product to fall?
One explanation is that, beyond a certain point, new workers will not have as much capital equipment to work with so it becomes diluted among a larger workforce I.e., there is less capital per worker.
In the following numerical example, we assume that there is a fixed supply of capital (capital = 20 units) to which extra units of labour are added to the production process.
|Numerical Example of the Law of Diminishing Returns|
|Capital Input||Labour Input||Total Output||Marginal Product||Average Product of Labour|
Criticisms of the Law of Diminishing Returns
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