Marginal product of labor ( MPL )
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slide 1 Marginal product of labor Marginal product of labor ( ( MPL MPL ) ) def: The extra output the firm can produce using an additional unit of labor (holding other inputs fixed): MPL = F (K, L +1) – F (K, L)
description
Marginal product of labor ( MPL ). def: The extra output the firm can produce using an additional unit of labor (holding other inputs fixed): MPL = F ( K , L + 1 ) – F ( K , L ). Determine MPL at each value of L Graph the production function - PowerPoint PPT Presentation
Transcript of Marginal product of labor ( MPL )
slide 1
Marginal product of labor (Marginal product of labor (MPLMPL))
def:The extra output the firm can produce using an additional unit of labor (holding other inputs fixed):
MPL = F (K, L +1) – F (K, L)
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Exercise: Exercise: compute & graph MPLcompute & graph MPL
a. Determine MPL at each value of L
b. Graph the production function
c. Graph the MPL curve with MPL on the vertical axis and L on the horizontal axis
L Y MPL0 0 n.a.1 10 ?2 19 ?3 27 84 34 ?5 40 ?6 45 ?7 49 ?8 52 ?9 54 ?
10 55 ?
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answers:answers:
Production function
0
10
20
30
40
50
60
0 1 2 3 4 5 6 7 8 9 10
Labor (L)
Out
put
(Y)
Marginal Product of Labor
0
2
4
6
8
10
12
0 1 2 3 4 5 6 7 8 9 10
Labor (L)M
PL
(u
nit
s o
f o
utp
ut)
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Youtput
The MPL and the production The MPL and the production functionfunction
Llabor
F K L( , )
1
MPL
1
MPL
1MPL As more labor
is added, MPL
Slope of the production function equals MPL
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Consumption (Consumption (CC))
• durable goods last a long time ex: cars, home appliances
• non-durable goodslast a short time ex: food, clothing
• serviceswork done for consumers ex: dry cleaning, air travel.
def: the value of all goods and services bought by households. Includes:
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U.S. Consumption, 2001U.S. Consumption, 2001
$ billions
% of GDP
Consumption $7,064.5 69.2%
Durables 858.3 8.4
Nondurables 2,055.1 20.1
Services 4,151.1 40.7
$ billions
% of GDP
Consumption $7,064.5 69.2%
Durables 858.3 8.4
Nondurables 2,055.1 20.1
Services 4,151.1 40.7
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Investment (Investment (II))
def1: spending on [the factor of production] capital.def2: spending on goods bought for future use.Includes: business fixed investment
spending on plant and equipment that firms will use to produce other goods & services
residential fixed investmentspending on housing units by consumers and landlords
inventory investmentthe change in the value of all firms’ inventories
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U.S. Investment, 2001U.S. Investment, 2001
$ billions
% of GDP
Investment $1,633.9 16.0%
Business fixed 1,246.0 12.2
Residential fixed 446.3 4.4
Inventory -58.4 -0.6
$ billions
% of GDP
Investment $1,633.9 16.0%
Business fixed 1,246.0 12.2
Residential fixed 446.3 4.4
Inventory -58.4 -0.6
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Government spending (Government spending (GG))
G includes all government spending on goods and services.
G excludes transfer payments (e.g. unemployment insurance payments), because they do not represent spending on goods and services.
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Government spending,Government spending, 2001 2001
$ billions
% of GDP
Gov spending $1,839.5 18.0%
Federal 615.7 6.0
Non-defense 216.6 2.1
Defense 399.0 3.9
State & local 1,223.8 12.0
$ billions
% of GDP
Gov spending $1,839.5 18.0%
Federal 615.7 6.0
Non-defense 216.6 2.1
Defense 399.0 3.9
State & local 1,223.8 12.0
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Net exports (Net exports (NX = EX - IMNX = EX - IM))
def: the value of total exports (EX) minus the value of total imports (IM)
U.S. Net Exports, 1960-2000
-400
-350
-300
-250
-200
-150
-100
-50
0
50
1960 1965 1970 1975 1980 1985 1990 1995 2000
$ b
illio
ns
U.S. Net Exports, 1960-2000
-400
-350
-300
-250
-200
-150
-100
-50
0
50
1960 1965 1970 1975 1980 1985 1990 1995 2000
$ b
illio
ns
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CASE STUDYCASE STUDY
The Reagan DeficitsThe Reagan Deficits
Reagan policies during early 1980s: increases in defense
spending: G > 0 big tax cuts: T < 0
According to our model, both policies reduce national saving:
( )S Y C Y T G
G S T C S
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1. The Reagan deficits1. The Reagan deficits, cont., cont.
r
S, I
1S
I (r )
r1
I1
r22. …which causes
the real interest rate to rise…
I2
3. …which reduces the level of investment.
1. The increase in the deficit reduces saving…
2S
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Are the data consistent with these results?Are the data consistent with these results?
variable 1970s 1980s
T – G –2.2 –3.9
S 19.6 17.4
r 1.1 6.3
I 19.9 19.4
variable 1970s 1980s
T – G –2.2 –3.9
S 19.6 17.4
r 1.1 6.3
I 19.9 19.4
T–G, S, and I are expressed as a percent of GDP
All figures are averages over the decade shown.
