Marginal Product Examples: Practical Applications for AP Economics

📚 What is Marginal Product?

Marginal Product (MP) is the change in output resulting from employing one more unit of a particular input (typically labor), assuming that other inputs are kept constant. It helps businesses decide whether to increase or decrease production.

• ⚙️ Definition: The additional output gained from adding one more unit of input.
• 🧮 Formula: $MP_L = \frac{\Delta Q}{\Delta L}$, where $\Delta Q$ is the change in quantity and $\Delta L$ is the change in labor.
• 📉 Diminishing Returns: MP typically increases initially, then decreases as more input is added due to the law of diminishing returns.
• 📈 Increasing Returns: In some cases, MP can initially increase due to specialization and efficiency gains.
• 💡 Decision Making: Firms use MP to decide how many workers to hire to maximize profits.

Practice Quiz

1. What does Marginal Product measure?
   1. A) The total output of a firm.
   2. B) The additional output from adding one more unit of input.
   3. C) The average output per worker.
   4. D) The cost of producing one more unit of output.
2. If a company's output increases from 100 to 115 units when it hires one additional worker, what is the Marginal Product of labor?
   1. A) 5 units
   2. B) 15 units
   3. C) 100 units
   4. D) 115 units
3. According to the law of diminishing returns, what typically happens to Marginal Product as more of one input is added (holding other inputs constant)?
   1. A) It increases indefinitely.
   2. B) It initially increases, then decreases.
   3. C) It remains constant.
   4. D) It decreases indefinitely.
4. A bakery hires a new baker. Before, they produced 50 loaves of bread per day. Now, they produce 58. What is the marginal product of the new baker?
   1. A) 50 loaves
   2. B) 58 loaves
   3. C) 8 loaves
   4. D) 108 loaves
5. Which of the following is an example of increasing marginal returns?
   1. A) Adding more fertilizer to a field that already has enough, resulting in no additional crop yield.
   2. B) Hiring a second employee who specializes in customer service, significantly improving customer satisfaction and sales.
   3. C) Adding more workers to an assembly line where there is not enough equipment for them to use effectively.
   4. D) A factory producing the same amount of output with more workers.
6. A farmer uses one bag of fertilizer and grows 20 bushels of corn. He uses two bags and grows 35 bushels. What is the marginal product of the second bag of fertilizer?
   1. A) 15 bushels
   2. B) 20 bushels
   3. C) 35 bushels
   4. D) 55 bushels
7. What is the primary reason a firm would want to calculate the marginal product of labor?
   1. A) To determine the total cost of production.
   2. B) To decide how many workers to hire to maximize profits.
   3. C) To calculate the average wage rate.
   4. D) To comply with labor regulations.