Essential Question

• How much of a good or service should a business produce?

Labor and Output• Marginal product of labor – the

change in output from hiring one more worker

Labor & Output• Increasing marginal returns – the

marginal product of labor increases as the number of workers increases

• Diminishing marginal returns – the marginal product of labor decreases as the number of workers increases.

Marginal Product of LaborLabor

(number of workers)Output

(beanbags per hour) Marginal product of labor

0 0 -

1 4 4

2 10 6

3 17 7

4 23 6

5 28 5

6 31 3

7 32 1

8 31 -1

Marginal Returns

Category 1

-2

-1

0

1

2

3

4

5

6

7

8

12345678

Production Costs• Fixed Cost – cost that does not

change, no matter how much of a good is produced.–Ex. Rent, salaries, machine repairs

• Variable Costs – Costs that rise or fall depending on the quantity produced.–Ex. Electricity, heat

Production Costs

• Total costs = fixed costs