At point C the slope is zero meaning that the MPL is as well zero. At the inflection point (A) the MPL reaches its maximum and continues to decline from that point and intersects the maximum of the APL. The average product is the TPL/Q and the MPL is the slope of the TPL curve.Īt point B the slope reaches its maximum and this is where the Average will reach its maximum as well. There are three characteristic points that have been pointed out: The first graph is the Total Product of Labor Curve (TPL) The Total Product Curve is shown in the first graph. The Total Product of a variable factor of production identifies which outputs are possible using various levels of the variable input. *Begin with previous knowledge of the Production Theory. For a perfectly competitive market to maximize profits MR must equal Marginal cost and in the long run this profit will be equal to zero. It means that at some price you will have a horizontal AR and MR curve and this coincides with the demand curve. This last equation is incredibly important to understand. ***This equation only holds for perfect competition Next we combine all of the information we just found. From this the ΔQ’s cancel leaving only P. We substitute P*Q again into the equation and can pull out the P because it is constant. Next we want to look at the change in Revenue, which is the slope and also known as the Marginal Revenue (MR.) We must divide the change in Total Revenue by the change in Quantity. We substitute P*Q into the equation and we come to see that AR = P because the Q cancels in the numerator and denominator. This will give us our Average Revenue (AR) Next we want to observe the average value of the revenue and to do this we must divide the total revenue by the quantity. Total Revenue (TR) is equal to the Price (P) multiplied by the Quantity (Q). We want to begin by starting with revenue. MR = MC is a necessary condition for perfect competition. For perfect competition in order to maximize profit the MNR must equal zero. This means that we have a positive marginal profit. The firm will continue to produce if Marginal Revenue is greater then the Marginal Cost. (π = Profit) These slopes are referred to as marginals. We want to change the equation above to look at the change in profit divided by the change in quantity.
We want to look at how profit changes with respect to quantity, meaning we want to look at the slope. Need to understand how to plot the Total Product of Labor Curve, Average Product of Labor Curve, and the Marginal Product of Labor Curve.Ģ. This is aimed toward those who have taken or are currently taking Intermediate Microeconomics.
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