Introduction to Microeconomics – 11 of 14 – The Structure of Production – Murray N Rothbard

INTRODUCTION TO MICROECONOMICS
Presented by Murray N. Rothbard in 1986 at New York Polytechnic University. Recorded by Hans-Hermann Hoppe.

11. Intro to Micro: The Structure of Production

As factors of production, supply and demand of labor, land and capital will determine how much the producer will get out of this process. This process occurs in different stages. In the earlier or higher stages, producers’ goods must be produced that will later cooperate in producing other producers’ goods that will finally co-operate in producing the desired consumers’ goods. The consumers’ good is valued because it is consumed – directly satisfying man’s ends.

Part 11 of 14. Presented in 1986 at New York Polytechnic University.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/introduction-microeconomics

Source: Introduction to Microeconomics – 11 of 14 – The Structure of Production – Murray N Rothbard – YouTube

http://www.readrothbard.com/introduction-to-microeconomics-11-of-14-the-structure-of-production-murray-n-rothbard

TRANSCRIPT

00:00
okay we have to have to get going here
00:05
because the term is suddenly approaching
00:07
its end I’m going to last up a cover and
00:10
so the next the next step talk about
00:13
talk about prices of consumer goods and
00:16
prices in general we talked about the
00:18
theory of the firm competition and
00:20
alleged monopoly etc and last the last
00:23
phase here to talk about prices of
00:24
factors of production and the different
00:26
factor markets prices of factors of
00:30
production of course of different kinds
00:32
of labor different kinds of land and
00:34
different kinds of capital goods so
00:37
everything has a price the rage rage
00:39
rates of the pipes of labor price of
00:42
machines price of raw materials etc etc
00:46
price of land rents of land all these
00:48
things are prices per unit of factors
00:53
and production of course the prices of
00:56
factory production is determinant by
00:57
demand and supply just like its humor
01:00
goods in other words you have the price
01:02
on the y-axis quantity and x axis in
01:06
this case quantity purchased over hired
01:08
so we now have alpha alpha meaning any
01:12
of the remember alpha beta and gamma dot
01:14
dot dot are the factors of production we
01:16
have prices of factors many factor
01:19
quantity here and we have a falling
01:24
demand curve and a supply curve supply
01:27
line which is vertical the short run
01:31
except that for laborers we’ll see it’s
01:35
not really doesn’t go down the x axis
01:37
because nobody’s going to work 40 or you
01:39
know one half a penny per hour so
01:41
there’s a go something like that so at
01:44
any rate so we have a supply curve and
01:48
we have demand curve and they support an
01:50
intersection of applying a man again
01:51
determine the price at any given time
01:53
because like with consumer goods the
01:56
price is higher than the equilibrium
01:58
point then you have a surplus unsold
02:01
surplus of Labor or land or capital
02:05
until surplus of Labor is on employment
02:07
we’ve seen with minimum wage you already
02:09
and if the price is below the free
02:12
market level of the
02:13
shortage from labor land or capital and
02:16
price will be driven up to the
02:18
equilibrium point we’re supplying a man
02:20
or equal so it works as just like
02:23
consumer goods the difference is trying
02:26
to find out what determines what the
02:27
term is the following a man curve the
02:29
shape of it determines the falling
02:32
demand curve shape the demand card
02:34
consumer goods we know the law of
02:36
diminishing marginal utility what
02:37
determines that the fact is a production
02:39
of the next step we know it’s falling we
02:43
know the worker has for twenty cents an
02:47
hour is going to be more workers be
02:49
higher than theatric fifty dollars an
02:50
hour so the question is what exactly
02:54
determines the shape of the man curve
02:55
because not the utility to the to the
02:58
consumer here in this case it’s the how
03:00
much actually the bottom line is is how
03:02
much the employer thinks he will get out
03:05
of it in other words how much money you
03:07
will see from this that’s the bottom
03:10
line and we have to show in detail how
03:11
this works okay so our next task has to
03:16
figure out the demand curve for factors
03:18
of production and what typically we know
03:20
it’s falling we have to integrate into
03:22
the rest of the system here and how it’s
03:24
related to prices and production and
03:26
productivity losses and demand demand
03:28
demand for consumer goods okay remember
03:32
the production function and we go back
03:34
to the production function alpha MX
03:36
combined with beta Y combined with ya
03:40
monsey yields a certain quantity of the
03:45
product are we use this before it’s to
03:51
show that the production function is
03:54
linear at home ingenious and that again
03:55
multiply each one by n you get n times
03:58
the product and that so you should have
04:02
you think I have an average constant
04:03
average cost curve it’s not really
04:05
confident because you can’t because of
04:06
indivisibility you can’t multiply
04:08
everything by n you can’t multiply
04:09
railroad tracks and wake em up five pins
04:11
and and your ship and years or whatever
04:15
the end paper clips as a result you had
04:17
a fooling average cost curve or u-shaped
04:20
average cost curve that’s why that’s how
04:22
we use the production function reform
04:24
we’re not going to use in a different
04:26
way
04:26
we’re going to do now for freeze beta
04:30
gamma etc and see what happens when
04:33
alpha is married what happens the
04:34
quantity I have is the product when you
04:37
vary one factor of production keeping
04:39
the others constant in other words so
04:42
this is a different use of production
04:43
function we’re now taking this is this
04:46
is a variable factor these are given
04:48
frozen so to speak at whatever quantity
04:50
you’re going to freeze it at and see
04:52
what happens the product when you do
04:53
that classically with an English she can
04:58
options economics more less begins in
05:01
Great Britain in 18th century late 18th
05:02
century when Britain was agricultural
05:05
the usual example as you take fixed
05:07
amount of land fix the amount of capital
05:09
goods say wheat farm and you vary the
05:12
number of laborers and see what happens
05:14
the production you don’t have to go out
05:17
and test it but it’s really it’s
05:18
question of logic we’ll see pure logic
05:21
the logic of cause and effect ok the so
05:28
now we start we have alpha the variable
05:30
factor and the one on the x-axis
05:31
quantities of variable factor we have
05:34
quantity producer now on the y-axis
05:36
physical production units whatever it is
05:39
your shifts cars loaves of bread wheat
05:43
whatever happens to be ok we freeze then
05:46
beta gamma etc constant you’re given
05:51
we’re varying alpha well if there’s zero
05:53
again we start at the point of origin
05:55
there’s no workers you’d have a week
05:57
filled with lots of lots of acres of
05:59
fertilizer and capital equipment you
06:02
know machine agricultural machines and
06:04
no workers nothing’s going to happen 30
06:07
products girl often zero product you
06:09
start the point of origin you can’t
06:12
produce negative low bushes a week
06:15
obviously you have you have to go up
06:16
from here so it goes up as you increase
06:19
the number of workers but using work is
06:22
this the classical way to do it easy
06:24
easy where to do it keep you have one
06:27
worker on 100 acres with all the
06:28
equipment if you have more than you
06:30
produce more than zero and keep going
06:32
what you’re measuring here is the
06:35
particular is the quantity
06:40
per unit per per worker in other words
06:42
you start this is physical units you’re
06:47
interested now in particular n how many
06:51
bushes a week / work are you producing 0
06:53
if it is 0 of course and one you can use
06:55
a certain amount and keep going up and
06:57
this is this is also cool average
07:00
physical product of the word product per
07:04
acre of product for worker or whatever
07:05
happens to be the physical product / the
07:08
variable factor so you go up and what
07:12
the basic law of economics in this case
07:15
technology or economics really law of
07:17
cause and effect is that at some point Q
07:22
R alpha will reach a maximum this is the
07:26
knows the law of returns all of physical
07:30
productivity well for the law of
07:32
diminishing returns sometimes call in
07:40
other words and as you increase alpha
07:42
starting with 0 at some point a PP for
07:48
reaching out starts falling reaches a
07:50
peak starts flowing now in other words
07:55
you can’t increase you can’t increase a
07:58
PP forever that’s tough not saying when
08:00
that’s going to happen but at some point
08:02
this is going to turn down now how do
08:07
you prove that how do you prove this
08:08
this law here that at some point as as
08:12
as alpha increases alpha average product
08:18
starts flowing if it didn’t start
08:20
falling you do it by proving the
08:21
opposite they showing the opposite of
08:22
this absurd it doesn’t start that
08:24
doesn’t start falling at some point it
08:26
means you can increase average product
08:27
forever in other words you could take
08:29
let’s say you have a hundred acres you
08:32
want to have more wheat you’re stuck
08:34
with a hundred acres and you’re stuck
08:35
with same amount of capital fertilizer
08:37
and whatever you know raw material etc
08:39
you can keep increasing number of wheat
08:41
as much as you want by just by pouring
08:43
more workers then 2 million workers on
08:45
100 acres blanket so just keep
08:47
increasing obviously it’s ridiculous you
08:49
can’t do it you reach a point
08:50
everybody’s falling all over themselves
08:51
can’t even walk
08:52
okay so it starts turning them they p p
08:58
or q / ow now if it didn’t happen if
09:03
look at the implications if I didn’t
09:06
start turning now would mean that all
09:07
but there’s no such thing at all factors
09:09
are perfectly substitutable for other
09:10
factors in other words if you don’t have
09:12
much land you don’t have much capital
09:14
you get it you can turn out the same
09:15
amount of product forever I simply pour
09:17
en more workers or the other wife you
09:20
could you know only one worker you keep
09:22
adding more land and somehow get them
09:24
more get more weight week forever so
09:27
this would imply that old factors are
09:29
perfectly cific substitute for each
09:30
other obviously they’re not perfect
09:32
substitutes otherwise you’d have only
09:33
one factor in the whole world you don’t
09:35
have a lot more only one fact you got
09:37
lots of factors lots of things which are
09:40
partially substitutes you can have less
09:42
workers and more capital and it still
09:44
haven’t saying equipment you can’t have
09:45
no workers an oil capital in other words
09:47
you get to the point where I think some
09:50
things are many things are fairly close
09:52
substitute but they’re not perfect
09:53
substitutes if they were perfect up do
09:55
they would be the same thing so the fact
09:58
that there’s more than one factor in the
09:59
world a production means that there are
10:02
no perfect substitutes so that therefore
10:05
you get to the point where the
10:06
productivity goes down as you freeze the
10:08
amount of you keep changing the
10:10
proportion you freeze beta gamma
10:12
separate keep Orion more alpha average
10:14
productivity going to turn down so this
10:17
is a law of reality law of cause and
10:21
effect the basic philosophic will apply
10:22
to all production and some economists
10:25
don’t realize that they keep trying to
10:26
test this they go out and they actually
10:28
they add more workers that have a look
10:30
sperm and a fourth experiment always
10:32
works as a Hastur with a low of logic
10:34
it’s really low of reality it hasn’t it
10:35
doesn’t need to be confirmed more upon
10:37
the way life is okay so average
10:41
productivity keeps full at one point
10:44
farts porn it can ever get negative okay
10:47
you never have minus one minus five
10:50
bushel but it can get pretty low and you
10:52
keep you keep going now let’s look our
10:59
remember our old average marginal
11:02
relationship here for every average of
11:05
the marginal for every
11:06
average of height is a marginal not
11:08
coming in and marginal basketball player
11:09
a marginal midget the change should see
11:11
the average okay in other words an
11:13
average so at the point when average is
11:15
going up marginal is higher than average
11:17
marginal physical product which is a
11:20
fine as delta q divided by delta alpha
11:23
in other words you can add one more
11:24
worker how many more bushes a week will
11:26
bring in so marginal average
11:31
productivity is Q divided by alpha
11:34
number bushes a week / number of workers
11:37
this case module physical product they
11:40
increased amount of weed are they
11:41
decreased in some cases for adding one
11:45
more worker so marginal when average is
11:49
increasing a member when average goes up
11:52
increases marginal is always higher than
11:54
average so we have to go something like
11:57
this when average is falling margins
12:01
below the average on the average of the
12:04
peak the marginal equally ever so it
12:07
cuts in like something like this this
12:09
will be the marginal physical product
12:12
Delta Q my by delta alpha a marginal
12:18
product can get negative and we keep
12:20
going as you have you know two million
12:22
people trying to produce wheat in 100
12:25
acres if you add one more working you’ll
12:27
have less product in other words you’ll
12:29
have a you wind up with even less
12:30
probably have before some MPP can get
12:33
below zero and get cut the the x-axis a
12:37
PP can’t in other words you can’t have
12:40
negative bushels for the whole product
12:42
but you can you can produce less bushels
12:44
needed before so eventually it goes
12:48
below it so this is our these are the
12:50
productivity curves basic product they
12:53
don’t have to be smooth or whatever
12:54
we’re not assuming that we’re simply
12:56
assuming it goes up leashes a peak and
12:58
has to be cheap because eventually
13:00
starts falling and marginal then goes up
13:02
faster an earlier cuts down and and the
13:07
same as the average of the peak of the
13:10
average okay now if you’re looking at
13:15
you look at where the an employer will
13:18
tend to use factors
13:20
production a week former or purdue
13:23
computer producer or whatever where are
13:27
they going to tend to use these people
13:29
these factors they’re obviously not
13:31
going to use nobody quiet please nobody
13:36
worth is nobody of any smarts at all
13:38
employed people hire another worker in
13:40
order to produce less sweet obviously
13:43
idiotic you’re paying somebody you want
13:44
to have a plus which of the weekend ever
13:46
before so nobody is going to produce
13:49
this zone here we mark out the zones and
13:53
let me make this a little larger here’s
14:07
a physical units q oh yeah start to the
14:15
point of origin goes down like that sigh
14:19
anyway nobody’s gonna produce in this
14:25
zone here zone three other words
14:28
nobody’s gonna produce in a zone we’re
14:32
just going to go like that nobody’s
14:41
gonna producing a zone where MPP is
14:43
negative so this is a Fulton area than
14:47
worthy this is an area where nobody’s
14:50
employ any factors of production you
14:52
hire one you’ve pasted you pay money and
14:54
get less production same way nobody’s
14:59
gonna produce all online here if they
15:00
know what the line is nobody’s gonna
15:01
hire another work i get 0 increase in
15:03
product obviously ridiculous to your
15:05
paying out good money getting no benefit
15:07
for it so this means this the line here
15:11
plus the zone 3 is a Bolton zone
15:14
nobody’s employ frankly the production
15:16
land labor capital in that area now i’m
15:20
gonna try to demonstrate it’s a much
15:21
more tricky this is pretty obvious
15:23
threes are from the Forbidden Zone i’m
15:27
going to try a demonstrate which is much
15:28
trickier is in the same way this zone
15:32
here is also forbidden
15:33
where’s the jam with the problem in zone
15:36
3 is you got too many workers in
15:39
relation to the amount of capital and
15:40
land you’ve got you’ve got an excess
15:41
amount of workers / other factors
15:45
similarly here you got going to have an
15:47
xog heavy the marginal physical
15:49
productivity worker than negative here
15:51
and 0 here you’re not gonna produce in
15:54
that area in the same way in this zone
15:56
here you have so few workers too few
15:58
work isn’t too much of an excess amount
16:00
of land and capital compared to the
16:01
number of workers so in this zone zone 1
16:04
you have a negative marginal physical
16:06
productivity for for the fixed factors
16:08
for land capital etc and here you have
16:11
zero physical product or the book factor
16:13
so in the same way nobody even producer
16:15
inferior either this is me tougher to
16:18
demonstrate but it’s the outlets the
16:20
other side of the coin in other words
16:22
here you have like one worker in a
16:23
10,000 acres and lots of equipment he
16:26
gets it and yeah and you’re in if you’re
16:27
offering in this area here to workers or
16:29
whatever one worker everybody’s rushing
16:31
around trying to kind of use everything
16:33
you know why not the less production if
16:35
you had half the number of land and half
16:36
a number of machines with everybody’s
16:38
been racing around trying desperately
16:40
use it you decrease your productivity by
16:42
doing that you had half the number of
16:44
machines and half of them out of land
16:46
they have a higher physical product so
16:49
I’m trying to demonstrate this take an
16:53
example just made up this morning it’s
16:57
easy to do it you take your own example
16:59
I’m going to I’m going to have a table
17:02
in the area of this area here which is
17:07
rising average visible planogram where
17:09
well yeah average physical pod is rising
17:13
or is it a peek so let’s take it is the
17:21
CAG typical table here here’s alpha into
17:24
the quantity the product 00 you start on
17:27
the point of origin so we want to have a
17:30
zone described ‘as own figures razon of
17:33
rising averages of a product with us
17:35
this is q / alpha which is a PP and so
17:42
let’s make this one let’s say this is 26
17:47
312 416 518 in other words on describing
17:52
here is an average physical product
17:55
which starts going up this is a 2 here 6
17:58
divided by 2 is 34 reaches a peak here
18:02
and then starts falling down here 3.6
18:04
this is our cue over alpha curve so this
18:10
one I’m saying is this zone here is a
18:12
forbidden zone nobody no factors gonna
18:13
be employed in this zone are the MPP
18:21
which is Delta Q over Delta alpha is 2-0
18:28
to 4 6-2 is for 12-6 665 12 oz for 18-6
18:36
to here we see the marginal physical
18:39
product reaches an earlier peak which is
18:42
a peek here that are here didn’t want us
18:44
to peak there is a secondary peak and it
18:47
starts falling intersect in the sex here
18:49
and below it okay so demonstrate the
18:55
craziness of this zone here this whole
18:57
host system um why nobody’s really
19:00
employed nothing is gonna blow factors
19:01
will be employed in this zone what we’re
19:03
saying here is this we’re taking exists
19:05
we’re saying if you take four of alpha
19:08
four units of four workers and combine
19:10
it okay with fixed factors wherever they
19:15
are beta gamma etc okay then you wind up
19:20
with 16 units of the product 16 bushes
19:25
with leader ever it is so and we’re also
19:31
saying a two units of alpha combined
19:36
with beta gamma etc yield six units okay
19:47
but if you take these if you take
19:51
remembering our law of linear
19:53
homogeneous back home production
19:55
function you take two units of alpha
19:57
here and combine it with all
20:01
with / to beta gamma pepper / to you
20:05
should get 8 will you cut everything
20:09
into and you’ll get you’ll then get two
20:13
units of alpha divided by the fixed
20:16
factors over 2 gives you eight units
20:17
where it’s two units of alpha divided by
20:19
beta I mean combined with beta gamma
20:20
separate gives you six units in other
20:22
words you increase your production by
20:24
cutting a number of Mount of fixed units
20:25
and a half obviously crazy you’re not
20:27
going to do that I could be in this area
20:28
where you have your hiring are buying
20:31
fixed units and using them as ink which
20:33
decreases your production bike by two
20:35
units because you’re in other words
20:37
you’re what you’re doing is you have an
20:38
excess amount of fixed units if you cut
20:40
the fixed units in half you’ll have more
20:42
production you have a four so this is
20:44
the way of describing this situation
20:47
going on those on the linear homogeneous
20:51
production function you just you’re
20:53
overloaded with fix units kind of an and
20:55
a half ian more with two alpha and you
20:58
do with twice as much so therefore
21:02
nobody will operate in this zone you
21:03
just eliminate get out of the zone fast
21:05
we have a negative marginal productivity
21:08
of fixed units X Factor’s so this means
21:12
that all all all factors will be
21:15
employed in this zone here known to you
21:18
also like all of the missing returns it
21:20
could be every factor of the employment
21:22
area where it’s average productivity
21:25
definition area it’s the area of the
21:28
zone where a PP is full and declining
21:35
and where MPP for greater than 0 this is
21:42
its meet in this area here with it
21:45
average physical productions of kelaniya
21:47
marginal physical production is also
21:49
declined but greater than zero i got go
21:50
into this area with their own I get it
21:52
so these are the two definitions for
21:55
your condition zone to the average for
21:58
producing enough of a variable factor
22:00
using enough of the variable factor so
22:02
the AP p is declining but not too much
22:04
of the marginal marginal MPPs gets 0 or
22:08
below it meet all factors of production
22:11
or labor all land or capital
22:14
whatever will be employed in zone 2
22:20
given of course the technological
22:22
knowledge and only other conditions this
22:23
is all you are using maximum you’re
22:26
trying to use your maximum productivity
22:27
which is the same thing as using a
22:29
minimum course we’re trying to keep the
22:31
average cost envelope or the fuse me a
22:33
pill will cause them as low as possible
22:35
so in case you so then the reward is
22:43
we’ve now established that every factor
22:45
will be employing zone 2 and now we’re
22:48
trying to get to the so every factor
22:51
will be employed on the area of
22:52
diminishing marginal personal
22:56
productivity and diminishing average to
22:58
the park now we’re trying to get from or
23:06
miss large average physical product
23:10
margin preserve our revenue product in
23:12
other word remember the whole purpose of
23:14
producing something is not to produce
23:16
the actual we but also for the employer
23:19
the businessman and make money out of it
23:20
again income so he’s interested in is
23:22
taking the weed of selling it so
23:24
therefore the man curb now comes an
23:26
anchor for wheat now comes into the
23:28
picture we integrate this whole thing we
23:31
have so all we have now we have it
23:33
falling demand curve you know that’s
23:35
calling demand curve for the actual
23:36
product for wieder whatever happens to
23:39
these a fellow’s selling and and
23:44
marginal revenue imported also falling
23:46
you’re below it and we’re now interested
23:49
in the marginal and average revenue
23:52
product they take marginal revenue
23:54
product the marginal revenue product the
23:56
fine is how much money we brought in how
24:00
much revenue we brought into the firm
24:01
for one more hiring one more worker or
24:03
one more take your land renting at one
24:05
way or whatever so this is delta T are
24:09
divided by Delta alpha trying to get us
24:12
this what you do is you take your delta
24:16
T are over the other half of the pens on
24:19
how much money how much money how much
24:22
revenue one more worker will answer the
24:24
free end of the firm whether it’s a weak
24:25
firm or computer firm whatever depends
24:27
on
24:27
how much he’ll produce and how much this
24:31
thing will be so for so we have okay
24:35
this is a marginal physical product is
24:47
Delta Q divided by Delta alpha marginal
24:55
revenue is how much the next unit of
24:59
wheat or computers were ever will bring
25:01
in pilton total revenue Delta to the
25:03
firm delta T are my eyes I’ll take you
25:07
in other words we have marginal physical
25:08
part we already talked about marginal
25:11
rubbing up the underneath of the man
25:13
curve the man curve is average revenue
25:16
PR / q and the marginal revenue was how
25:23
much more revenues brought in by one
25:25
more you know the more bushel of wheat
25:26
one more well for Wonder Bread one more
25:28
computer or whatever being sold so we
25:32
take then the marginal physical product
25:34
our new our new concept x marginal
25:37
revenue and yet marginal revenue product
25:39
of a factor in other words this these
25:43
things this cancels that we and we wind
25:45
up with delta T are a lot of my Delta
25:49
alpha so the marginal revenue product of
25:53
each worker the same way of the average
25:54
serving approximately not that
25:55
interested in average over your problem
25:57
same thing average revenue product is a
26:00
RP is your 1 by alpha that will equal AP
26:09
p which is Q over alpha times average
26:16
revenue sources a man curve which is PR
26:22
/ q this cancels that we have TR over Q
26:26
or average revenue product so we do is
26:32
in other words we multiply a physical
26:33
product by the revenue we get the
26:36
revenue product so in the case of
26:39
marginal revenue product most my modulus
26:41
product x marginal revenue get on her on
26:44
your product now since the now we not
26:48
now we have the thing with the employers
26:50
address this isn’t finding act he buys
26:52
one more machine or highers one more
26:54
rents one more piece of land or high as
26:56
one more worker how much money will
26:57
again at is how much income will bring
26:58
in how much revenue will bring in and
27:01
now we at least conceptually know what
27:02
of this we multiply the physical product
27:04
by the revenue marginal revenue and we
27:09
know the marginal revenue is falling
27:11
okay the wrong time does average
27:13
revenues for we know the man care was
27:15
falling we know the marginal revenue is
27:17
falling we also know at this point a
27:20
marginal physical product is falling
27:21
because everything is employed in that
27:23
zone okay so this is falling that’s full
27:26
and then the total must fall well you
27:28
have to fooling curves you multiply then
27:30
you wind up another falling curve we now
27:33
have another set of curve here you have
27:44
and zone 2 which is now are interested
27:48
it’s irrelevant the relevant zone which
27:50
all factors will be employed we have
27:53
falling average revenue product and only
27:56
marginally for every factor for every
28:02
every product now funds will be dollars
28:10
so we’ve established now why in March
28:13
revenue per product why the MRP curve is
28:16
falling and what is it what if what is
28:19
composed of mainly the physical product
28:21
Mr P and P P times the marginal revenue
28:23
EG the physical products would permit
28:25
about technology and you know it’s the
28:28
smarts of the manager and that sort of
28:30
stuff and the and the you ever and the
28:32
demand curve and marginal revenue curve
28:34
remember consumer how much the consumer
28:35
values the product how much is willing
28:37
to spend on it this integrates the
28:39
consumer and a physical production the
28:42
whole physical all of the physical
28:43
production next the final thing the
28:46
final things demonstrate here is the MRP
28:47
curve will be the demand curve for the
28:49
factor final step here in other words
28:51
I’ve established so far the physical
28:54
product what happens the average appn MP
28:58
he curves why they a PP has to go down
29:00
turn downward eventually and then why is
29:03
every practice can be employed and is
29:05
known to and not on one on three and and
29:08
then what determines MRP which would be
29:11
the falling MPP curve x they falling
29:14
marginal revenue curve the next the
29:16
final step at the show this will be the
29:18
man curve for the factor for this reason
29:21
okay here’s an employer let’s say this
29:24
is uh let’s say it’s wage rate but also
29:33
applying a capital goods prices machine
29:35
prices of machines or friend of land and
29:37
here’s wage rate why is this on the
29:43
phone some noise coming from the ghost
29:55
machine okay hey huh okay here’s uh
30:00
here’s our Emmy MRP curve marginal
30:05
revenue product her for every factor
30:07
which we’ve seen now has to be falling
30:09
in the relevant zone if this is a wage
30:12
rate let’s say this is a given wager is
30:14
it would establish on the market
30:15
whatever it is a final is an hour and
30:19
question then is how much will leave the
30:21
boy or higher at that wage rates they
30:23
followers I’m going to demonstrate now
30:25
he’s going to hire this amount in other
30:27
words this is 200 people at 200 he will
30:32
be hiring 200 workers at five dollars an
30:35
hour for this reason if he hires a 100
30:39
workers the radiators profile all is
30:42
that some assuming wage rate is
30:43
finalized about the market wage rate at
30:47
that point the marginal revenue product
30:49
for every worker with work will bring in
30:51
to every firm say seven dollars MRP and
30:56
cost only finals means getting a two
30:58
dollar profit per worker I want to keep
31:00
hiring more workers in other words
31:01
remember the goal of every employer to
31:04
maximize the profits all of every
31:06
business mayor so if he’s getting two
31:08
dollars to work is going to keep hiring
31:09
more people as he hides more you still
31:10
get some more profit but now it’s going
31:12
down old that set of two dollars now
31:13
buck 95 it keeps going keeps hiring
31:17
people until surplus and eliminated you
31:20
get to the point where the he’s getting
31:25
no more he’s getting actually this
31:27
assumes you getting five dollars now for
31:29
each work on a tiring trial that’s a
31:30
real peculiar because it should be
31:32
gaining a wee bit more of a purpose of
31:34
simplicity assuming he gives up right up
31:36
to the point here the intersection
31:39
engines under section so that in other
31:43
words this doesn’t mean he’s making no
31:45
profit that means getting the maximum
31:46
profit these the hiring workers until
31:49
the MRP is full until the eighth of the
31:52
wage rate then he stopped actually be a
31:54
little bit more left of that forgetting
31:57
has ever purpose of simplicity so if he
32:00
doesn’t have come harder he’s going to
32:02
lose profits because he’s making two
32:04
dollars per worker until he keeps going
32:05
going finally he’s making almost nothing
32:07
for work or extras or profit and he
32:09
stops conversely if he’s hiring three
32:12
hundred let’s say hang out files now
32:17
he’s only making four dollars in our
32:18
revenues losing a buck an hour obviously
32:20
is not going to do that with fire
32:21
workers are not hire them but quickly to
32:23
the left here until he stops losing
32:25
money and that’s pretty obvious so then
32:29
he gets back in a now again to the 200
32:31
in other words market forces will impel
32:34
any any any employer to to hire exactly
32:38
almost exactly 200 workers a final wage
32:41
rate in other words where the the MRP
32:44
point wage rate goes up to hire only 100
32:47
but this is now Wow fear still high as
32:50
200 we can be paying out seven dollars
32:54
an hour and making only five they can be
32:56
losing two bucks in there on quickly
32:58
finally see what’s going just to this
32:59
point again so in other words if you say
33:03
that given the wage rate you can hire as
33:06
many workers and meatless exactly equals
33:09
the MRP almost exactly equal but like
33:12
that that means you’re defining the MRP
33:15
curve as a demand curve for labor that’s
33:17
what it is I was remember
33:18
of the man care of it the man cover but
33:19
locus is the expression of how much
33:22
people will buy any given price the
33:24
prices of a chess set of seven bucks you
33:27
buy this many chess sets consumer the
33:30
price is six bucks you buy this money if
33:31
it’s five bucks by that many separate
33:32
said oh that’s why the demand curve
33:33
means the definition of the man curve
33:35
how much will be like a freeze-frame
33:37
situation where you fight you determines
33:40
how much people will buy any given price
33:41
similarly if the nyp curve will give you
33:44
how much people hired any given wage
33:46
this means this is the man curve for
33:49
labor or any other factor this is the
33:52
price of machine is an American machine
33:54
this is a rent of land at the manifold
33:56
and so in other words the marginal
34:01
revenue product curve any factor will be
34:03
the demand curve for that factor by
34:05
employers or by business management
34:08
psycho’s mean anybody who uses hires
34:11
equipment or labor or buys machines or
34:14
rent land or whatever so the fact you’re
34:17
good the man curve for factors will be
34:19
the marginal revenue product heard of
34:21
the factor okay supply curve of factors
34:25
whatever it is I mean immediate
34:26
shortland something like that and
34:28
therefore a wage rate or the price of
34:31
any factor will be the intersection as
34:32
usual supply and demand it means me
34:35
we’re determining a demand curve is my
34:37
cover the term of why what’s existed
34:38
yeah huh let me start at me down here
34:49
yeah right why not this point you making
35:00
proper to on the worker extra profit and
35:02
you keep hiring people you finally get
35:04
down at home yeah we’re gonna make no
35:05
further profit hiring one more worker at
35:08
this point here you’re getting and
35:09
making to a marginal profits with all
35:12
the worker this is a margin other words
35:14
how much you make per worker so you keep
35:17
hiring people to until you absorb get
35:20
the max amount of profit I know where to
35:21
begin to keep you in other words he and
35:23
making two dollars extra profit per
35:25
worker and he’s behind another working
35:26
and making a dollar ninety four work you
35:28
keep going because if Thea has a maximum
35:31
in other words so leave Mr P in the
35:33
wager is the same and profit as a profit
35:36
per the additional profit zero it’s the
35:39
additional profit than that for the next
35:40
worker so to speak now this is a margin
35:48
in other words if you stopped right here
35:49
you’re losing all that money to be
35:51
making this is how much you’re getting
35:54
for the next worker so the union of
35:55
marching unit in other words you’re
35:58
losing out of the dollar ninety dollar
35:59
eighty dollars 17 or rest of it if you
36:02
don’t keep hiring people yeah your
36:04
objects not to maximize the marginal
36:06
difference marginal profit from your
36:08
object to maximize the total profit it
36:10
only gets the top largest total profit
36:12
by absorbing all of this all this profit
36:14
ok it’s a tough that’s probably the big
36:20
most important sticking point for
36:21
students the important thing is this is
36:23
a marginal rate and the profit per unit
36:26
worker you’re getting as you’re going as
36:29
you keep going if you add one more not
36:34
the total remember that this is this is
36:35
that this is the margin this point is
36:37
the marginal product of marginal wage
36:40
worker or a marginal machine if you’re
36:42
getting so the intersection point
36:48
supplying man then gives you the right i
36:51
mean wager it actually is so we’ve
36:54
talked about fooling a man curve for
36:55
labor everything out so we haven’t
36:56
insight determine what it is now we know
36:58
whether the marginal revenue product
36:59
curve for each worker or each machine or
37:02
each unit this is the so called marginal
37:05
productivity theorem it’s cool and
37:07
watching productivity theory wages we’re
37:08
really is the marginal productivity
37:11
theory of all factors of production in
37:12
other words the reason why factor of
37:14
production might spend a certain amount
37:16
for a machine or you know rented land
37:18
because you think it will benefit you in
37:20
producing stuff hook for itself the
37:23
consumers in other words put it this way
37:25
famous i think w stanley jevons famous
37:28
economist late 19th century pointed out
37:30
the reason why you the rent of land and
37:33
champagne country in france is very very
37:35
hot producing top-quality champagne if I
37:37
own ten thousand dollars an acre or
37:38
something a rent of land some in some
37:40
ways in the desert a couple of dollars
37:42
an acre the reason you’re paying so much
37:44
land and shampoo
37:45
he’s not back for this way the reason
37:48
the price of champagne is so high is up
37:50
because you’re paying a higher rent in
37:51
the champagne land reason why you’re
37:53
paying such a high rent sure Pamela if
37:54
you know that that champagne is very
37:56
worth a lot of the consumers will pay a
37:58
lot for it in other words it’s the fact
38:00
this particular little area of France
38:02
the grapes grown they’re very high
38:05
quality a high quality wake the man by
38:07
consumer because of that employers and
38:10
farmers is such a bit up the land a
38:11
great deal but up the rent you’ll a very
38:13
high level so most people think that
38:15
people charge a high price Lisitsa
38:18
paying a higher end that’s not the
38:19
reasons though there’s no god-given we
38:21
those divine divine mandate event has to
38:23
be higher than champagne country it’s
38:25
high in the champagne credit because the
38:27
product is so expensive so it’s so high
38:28
quality does the product in such great
38:30
demand people pay high rents for it if
38:33
the coming your wine somewhere else 50
38:35
miles away which is very cheap the rent
38:38
is low because of because the product is
38:40
cheap got the other way around in other
38:42
words the rent is determine the price
38:44
doesn’t that the register doesn’t cause
38:45
the price that’s not a course the area
38:48
prices because you have to pay a higher
38:49
rent you have them charging higher price
38:51
for the one you only get the high price
38:52
of the white girl if consumers want it
38:54
but there’s a high demand because of the
38:56
heart is a high demand scarce resources
38:58
that produces such as land a bit up very
39:00
high so in other words the man curve for
39:03
the plan goes way up a pice goes way up
39:05
etc etc so the price of the factor is
39:10
determined by the module but by the
39:12
product are typically how much the the
39:15
product is worth of the consumer demand
39:18
curve the consumer for the product which
39:20
then bids it up makes a very high
39:22
marginal revenue product so so so price
39:29
the term ins rent was the price of the
39:30
product covers the rent not the other
39:32
way around or redder than red is the
39:34
expectation you be able to charge a high
39:35
price but garlic and if for example
39:39
these Italian wines were there is a big
39:41
big scandal recently put a lot poison
39:44
Italian wines I might very clear
39:47
prediction is the price not only will
39:48
the price of these wines go away now as
39:50
a rent of the land of producing will go
39:52
way down as a result so the renter’s
39:55
fluctuation in accordance with how much
39:57
people can get for the product okay
39:59
enough for the night wipe a lot of stuff
40:01
they come there that’s the time
40:04
recapping our stuff and one thing is
40:08
we’re having a very peculiar let’s see
40:09
we have any break peculiar terminus
40:11
terms you know next thursday is as we
40:14
don’t meet that’s a that’s a hollow that
40:16
you wish holiday so so huh what next
40:20
thursday so that’s the 20s today honey
40:25
for they on me so tuesday after that and
40:28
thursday after that we mean and then the
40:30
following monday becomes a thursday and
40:32
the magic transformation of the nature
40:34
of poly so that we will meet mondays of
40:38
fish for the fishes yeah monday may the
40:40
fifth that’ll be our last to our class
40:43
no yeah well yeah last to our class
40:45
which which will also be our exam mother
40:47
we’re going finally final exam will be
40:51
in the last two hour class monday may
40:55
look this is i don’t know if this is
41:01
strictly kosher if i’m doing it anyway
41:03
so you know reason see no reason not to
41:05
look too okay this is a two-hour class
41:09
and the exams or three hour exam i never
41:11
get more than two hour exam anyway so it
41:13
doesn’t monday may the fit will be the
41:15
final remember that the so-called
41:19
thursday will be thursday be transformed
41:22
magically at a monday i made a theft and
41:24
we meet in this this room yeah don’t be
41:27
the final i haven’t made up the file yet
41:29
but the final one will cover the whole
41:31
term and to be some kind of objective
41:34
pets i’m not sure yet will be no long
41:36
essays they’ll be either multiple choice
41:39
fill in the blanks something like that
41:41
some combination or short identification
41:43
question perhaps like yeah marginal you
41:47
know and one brief paragraph what is
41:48
what is it identifier what’s the
41:50
significance of margin utility something
41:51
like that so be some there won’t be any
41:53
long essays and i’ll cover the whole
41:55
term so okay that’s the that’s all I can
42:00
say about it now any rate so
42:07
i also have blue books I think new books
42:09
they stopped making new books for a
42:11
while but I think I’ve not got another
42:12
cache of them i hoarded some blue books
42:15
over the years I since I suspected
42:16
something about what happened some some
42:18
days I’ll crack down on poop books money
42:21
right there’s a new supply yeah and it’s
42:23
the fontainebleau books so yeah I don’t
42:30
have a quality vinyl not like blue books
42:33
to me at any rate the to go through the
42:41
summarizes some some extent some length
42:44
last Tuesday stuff we’re trying to find
42:47
out we know that all prices are for our
42:50
equals a form x equaling supplying the
42:53
man I was a falling demand curve as a
42:55
given supply line for everything Shh for
42:59
consumer goods for capital goods for raw
43:00
materials for labor any price on the
43:03
market determined by a stock of the
43:06
product supply a given supply at any
43:08
time and the demands for them and the
43:10
minds of the buyers in other words the
43:12
evaluations how much the buyers are
43:14
willing to pay I’m actually willing to
43:15
buy any given just different given price
43:17
through the prices and quantity and of
43:21
course any and any maximum minimum
43:23
pricing trova cause shortages of surplus
43:27
so so we dealt with consumer it goes
43:30
mostly most of the first half of the
43:31
term and how the man curve is formed the
43:33
mall margin Philip diminishing margin
43:35
Phil etcetera etc now we’re getting took
43:38
producers good in other words factors of
43:41
production prices of labor land capital
43:44
goods machinery etc we know they have a
43:46
falling demand curve we don’t have a
43:47
given supply and we know also if the man
43:50
curve goes up on the prices and profits
43:52
increase would be more greater supply
43:54
and a few years the same works for labor
43:56
to of course if there’s others will see
43:58
the labor market today probably would
44:00
market see if there’s a big increase in
44:03
the man for plumbers let’s say is it
44:04
gets compared to carpenters the wage
44:07
rates for plumbers will go up and people
44:09
will see that youngster is coming up and
44:11
want to go into something with the off
44:12
some reserve there’s a big increase in
44:13
wage rate they start going into the
44:15
plumbing occupation and the supply of
44:17
mine plumbers increases and the wage
44:20
rate will for
44:21
lay some extent and we’ll reach another
44:24
equilibrium point so the whole thing
44:25
works for labor as well as capital goods
44:27
of course there are different time lags
44:30
here in other words some occupation take
44:33
just a few months of get into it others
44:35
will take many years like physicians or
44:37
whatever but anyway if you assume that
44:41
the the increased demand is permanent
44:43
people go into it for example is during
44:46
the 1960s and 70s everybody everybody in
44:49
his brother and sister went to law
44:50
school the big crazy little mo knocking
44:52
law school but every money went into it
44:54
pudding oh the picket semi former
44:56
pickups an SDS pickets in college you’ll
44:59
wind up in law school so for us the
45:01
result is was an overcoat oversupply
45:03
unquote of lawyers meaning that they
45:04
were not getting the income I like to
45:06
become accustomed to and so the law boom
45:09
law crazy and a fall off people start
45:11
going other stuff computers or whatever
45:12
so there are different waves of
45:14
occupation that people get attracted to
45:16
when I was going to college everybody
45:18
went to nuclear physics that was a big
45:19
that was the big occupation okay ah so
45:24
any rate this of this so there are
45:27
different then and it’s a response
45:28
basically forces possibly interest of
45:30
each person but also responsible as a
45:31
man for it the jobs and the wages of
45:34
wage rate speaking of salaries you can
45:35
get then you’re right so and the
45:38
question we dealt with on Tuesdays given
45:40
the fact of the following the man curve
45:42
for factors of production what
45:43
determines it what’s if it’s not the
45:45
utilities not margin utility that’s the
45:48
consumers in other work that sumers
45:49
evaluate wonder bread or or or or chi
45:53
phi sets producers business management
45:55
they don’t buy it for their own sake we
45:56
don’t buy don’t hire workers to sit
45:58
there and look at them it kind of
46:00
produce a product which they hope
46:01
consumers will buy so in other words the
46:04
man four factors of production what’s
46:06
called the wrong I’ve demand derived
46:07
from consumer demand for the product and
46:12
sum of course some raw materials going a
46:14
different product steel aluminum can go
46:16
to doesn’t is a different final products
46:18
for consumer so that the rider man gets
46:21
passed down from the consumer to the
46:22
various stages of production to the
46:25
various factors in the demand curve a
46:28
derived of man is not automatic it’s not
46:31
sort of you don’t push a button and
46:33
increase the
46:34
and it goes it’s arrived by the fact an
46:37
entrepreneur is a businessman always
46:39
looking for profitable profitable
46:40
investments will say hail I think
46:42
consumers gonna buy a lot of computers
46:44
the personal computers next few years
46:45
let’s say so we’ll start going into the
46:47
personal computer business and they
46:48
start hiring engineers or whatever and
46:50
getting building a plant so when someone
46:52
to produce it expecting the other words
46:54
arrived demands really expected this
46:56
expectation the consumers will want to
46:58
buy image you’re catching the wave
46:59
you’re catching the big wave sometimes
47:01
you catch it too late so matter if
47:04
you’re a lousy entrepreneur you get into
47:05
the business just after it just isn’t
47:06
sinking into the rest you know this is
47:08
declining you enter the business other
47:11
those who are having a telegram
47:13
intuitive they can grasp the situation
47:15
will be one of the first people be a
47:17
computer personal computer manufacturer
47:21
or whatever and whatever the next big
47:22
wave is and yeah first you have to know
47:26
the market you have to have insight
47:27
there’s no way to teach it what’s going
47:29
to be the next thing and yours from that
47:31
at any rate so if you expect that the
47:34
man you try to catch it your
47:36
entrepreneur and go into the business
47:37
and you hope that this will be reflect
47:39
that you increase the man of consumers
47:41
so whatever it’s going to be personal
47:43
something or other beasts the compact
47:45
disc or the next thing after the compact
47:47
disc of a big laser whatever how it’s
47:49
any rate so this is what this is how the
47:53
man has arrived it’s not automatic many
47:55
economist sort of thinking of the
47:56
automatic push your button the man gets
47:59
passed down to the to the structure
48:00
production it’s it relies on a business
48:03
event entrepreneurs the seeds look at
48:05
what’s going on a forecast correctly and
48:06
to then hire the workers and Bill the
48:09
plants and factories everything to make
48:11
this possible the meet the demand they
48:13
don’t meet it correctly they make losses
48:14
they meet it correctly to make profits
48:16
inspire them to do more and more
48:18
resources going to the fans are the
48:20
successful entrepreneurs and fewer
48:22
resources and hands of those who don’t
48:23
gas and go bankrupt any rate so the
48:27
demand that arrives a man this is the
48:28
demand curve for faculty production the
48:30
derivation is through the various
48:32
formulas I gave you on Tuesday in other
48:34
words the we look again at the
48:38
production function the fact that this
48:45
is so full of Norfolk truth of
48:46
mathematical philosophic food for all
48:48
all action for all use of mean to
48:50
achieve ends but a certain amount of x
48:54
factor x combined with in a certain way
48:56
to buy with a very whatever way is going
48:58
to be a certain amount of factor why why
49:02
was a certain amount of the will bring a
49:04
dot dot dot in other words many site
49:07
will bring about a certain quantity of
49:09
product cubed of our use our because i
49:12
can’t use p he usually needs prices so
49:15
just using our of the symbol of you have
49:18
a question so that’s the so-called
49:22
production function an abstract function
49:24
relating means to end in other words
49:27
relating factors of production combined
49:29
in certain ways my manager is
49:31
represented product so we saw before we
49:35
use this before to show that the linear
49:38
homogeneous by definition this call
49:41
equal causes oev illegal effects the end
49:44
times each amount yield n times the
49:46
product then we said well this is if
49:50
that’s true how come you’ll have
49:51
constant average costs why isn’t the
49:54
average cost curve horizontal flat and
49:56
the reason is because you can’t multiply
49:58
everything by n in practice and practice
50:00
these things have different degrees of
50:02
indivisibility in other words the paper
50:04
clips are very divisible you’re always
50:06
order twice as many paper clubs you
50:08
can’t have twice as many railroads or
50:09
very easily can it price them any
50:12
factory that’s much more indivisible so
50:15
what you have is different degrees of
50:16
been the visibility of the visibility a
50:19
small machine will be divisible a big
50:21
big machine will be much less the
50:23
visible etc etc and you therefore wind
50:26
up your tapping because indivisibility
50:28
as you increase production and if we
50:29
have the declining cost curve and going
50:32
up because you’re getting your
50:34
eliminating a lot of these into
50:35
visibilities you’re getting to the point
50:36
we’re making full use of your fixed
50:38
equipment so now what we do is instead
50:44
of looking at multiplying everything by
50:45
n we’re trying to look at each factor
50:48
what’s the productivity of each factor
50:49
what does each factor contribute to the
50:50
product the way we do it is we freeze
50:53
all factors except one freeze beta gamma
50:56
etc make make them as given and we very
50:59
alpha and see what happens the product
51:02
the Alpha can be any given product to
51:04
take any labor or any machine or any
51:06
piece of land very that they’re doing
51:09
this conceptually this is what’s done on
51:11
a market order almost automatically
51:13
interplay of the market we’re doing
51:15
conceptually we’re taking okay assume we
51:17
freeze all the Oliv variables or
51:18
something one and see what happens when
51:20
you marry one of them but have the
51:22
product so then what we have is on the
51:27
y-axis instead of dollars or price we
51:29
now have physical units bushels of wheat
51:32
high five loaves of bread whatever
51:34
happens to these cues on the y-axis or
51:38
physical units i should say and what you
51:42
have in the x-axis is whatever the
51:45
variable factor is units of the variable
51:47
factor from zero up to you know and then
51:49
so quantity of alpha is on the x-axis a
51:52
physical unit is on the y-axis which
51:54
wasn’t weak or you know loaves of bread
51:58
where happens to be you have no variable
52:01
factor then you have no product and you
52:04
start there for the point of origin no
52:05
workers off the land and lots of
52:08
machines and nuts nothing is going to
52:09
happen as you vary the fact if you
52:11
increase the factors and zero up
52:13
probably will go up of course you start
52:15
getting some products and you keep going
52:18
everything this is the average product
52:20
line now average physical product the
52:25
finance product / variable factor in
52:27
other words you’re producing week now
52:30
you have we have lots of you have
52:32
workers you have machinery and have land
52:33
you’re freezing land and the photos for
52:36
the moment you’re keeping those is given
52:38
keeping the equipment machinery the
52:40
tractor the fertilizer loss of it in the
52:42
land you keeping given you bury the
52:44
number of laborers you start with zero
52:46
you got no product and then this is our
52:49
product / labor in other words what
52:51
we’re saying is lately product average
52:55
physical part will start going up from
52:57
zero to something okay the law of
53:00
diminishing returns the basic law of
53:02
technological philosophic law so to
53:04
speak is that average for the physical
53:07
product will eventually turn down cannot
53:09
go up forever that’s the law the words
53:11
law of diminishing returns
53:15
is that nothing returns always diminish
53:17
but that eventually the average vertical
53:20
product turns downward as you keep
53:22
increasing the variable factor in other
53:25
words as as alpha increases a PP
53:32
eventually the clients and the reason
53:37
for that is that products are a fact
53:40
every factor is different there’s no
53:41
perfect substitutability factor you can
53:43
substitute to some extent if you can
53:45
have more capital goods and less workers
53:47
you can have more workers and less of
53:49
machines you can have more aluminum less
53:51
CEO or whatever but substitution is not
53:53
perfect it can’t be perfect as in the
53:55
word perfect would be the same thing
53:56
only the same thing as this can be
54:00
perfectly substitutable for itself to
54:01
speak even Wonder Bread those of us who
54:03
are Wonder Bread fans know perfect
54:05
substitute for Wonder Bread I mean I can
54:07
eat tasty bread it’s a substitute for
54:10
some in perfect substitutes not the same
54:11
that doesn’t same yumminess yeah I
54:14
wonder bread so yeah the as a result is
54:20
our substitution in the world but
54:22
they’re imperfect not perfect okay so if
54:25
they were perfect you can keep port in
54:27
other words if you had only 100 acres of
54:30
wheat of land and a certain remember
54:33
amount of fertilizer machine you can
54:35
increase the amount of wheat
54:36
indefinitely by just adding more workers
54:38
you have two million workers 100 acres
54:40
is increasing we course you can’t do
54:43
that the one thing is working forgetting
54:45
to each others away i’ll start you know
54:46
when the stand look the production will
54:49
start by climbing very rapidly so what
54:52
we’re saying is that had the same way
54:53
with you just if you have the same
54:54
amount of work of ten workers and two
54:56
million acres then i could be able to do
54:57
and won’t be able to use this stuff if
54:58
you’re running around like crazy trying
55:00
to sew the wheat or whatever and the
55:02
result the whole thing will collapse so
55:04
what you have in other words as you
55:06
increase the variable factor and freeze
55:07
the other fact given theta gamma
55:10
separate constant you keep increasing
55:12
the variable factor you eventually ATP
55:14
will go turn downward start the cleaning
55:19
some that the law which is derived from
55:22
the basic knowledge of reality it
55:24
doesn’t have to be confirmed empirically
55:26
it is it an economist try cut from a
55:28
pair of course it
55:29
we really have to be confirmed for no
55:30
way you can not have this law and to try
55:33
to test it by going out an extra
55:35
agricultural Experimental Station some
55:37
of these guys there was thank you if you
55:38
don’t waste your time it’s okay but
55:39
really and it really I don’t have to do
55:41
it so then we have our basic average
55:44
marginal relationship remember to the
55:46
basically which is simply a mathematical
55:47
relationship for every average of the
55:49
marginal other words if you have as I
55:51
said before a couple of weeks ago you’re
55:54
averaging the height of this class for
55:56
whatever reason if to basketball players
55:59
walking you’re going to raise the height
56:00
average height of the more in other
56:02
words the margin if for average to go up
56:06
if the average of X is increasing that
56:09
means that the marginal X then the
56:13
marginal of X is greater than the
56:15
average of X the same way if have two
56:21
midgets walk in through three footers or
56:23
four-footers walk in its going to drag
56:25
down the average there’s another words
56:26
with the average so if the average is
56:28
decreasing than the marginal of X is
56:31
less than the average I talked about
56:35
this one we dealt with costs for the
56:37
same thing applies the product is a
56:39
simple mathematical dash philosophical
56:41
relationship and so therefore if these
56:44
two things are true and obviously true
56:46
then if average the average reaches
56:49
becomes flat for a minute other words
56:51
the average is at a peak and turning
56:54
just about to turn downward like so or
56:57
if it’s of the trough just about it turn
56:58
up when so other words if the average is
57:01
constant for a moment then the marginal
57:05
has two equally average the only way to
57:07
get from one to the other so look at
57:12
another way if this if the average
57:13
height of his class is 58 and 258 guys
57:16
walk in the average remain the same over
57:19
the marginal is not equal to the average
57:21
so yeah it’s in other words in the case
57:24
so of course remember of an average
57:31
course that’s going like that au shape
57:35
from the second and marginal cost was
57:37
below it when is decreasing above and
57:40
when it’s increasing therefore if I cut
57:41
the intersect of a cough point when it’s
57:44
continent and similarly now with of
57:47
course if you have a flat like that if
57:50
there’s like permanent you know for the
57:52
whole range Aboriginal equal marginal by
57:55
whole plateau the whole flat bottom
57:58
similarly here in case of productivities
58:01
it’s called average productivity and
58:03
marginal productivity marginal physical
58:06
productivity product which is equal to
58:08
fine as Delta Q divided by Delta alpha
58:12
in other words how much you add one more
58:15
worker how much how many new brushes a
58:17
week ended yet while average product is
58:21
going up it’s going to be higher going
58:23
to go like this MPP and then it’s enough
58:26
when it’s declining is to be lower it
58:29
was a peak point to be equal so then you
58:33
have your two curves average physical
58:36
product module for the product which
58:38
intersects of the peak point and if you
58:41
keep going eventually marginal physical
58:44
part will cut the x-axis and be negative
58:47
the average is like obviously you can’t
58:49
have a negative average follows no such
58:51
thing as producing minus 20 which is a
58:53
week but you can you can reduce you can
58:57
have you can produce less than you did
58:58
before keep adding worker who fix the
59:01
amount of capital and machine land you
59:04
know wind up I add one more working yet
59:06
less week produced the marginal product
59:09
can be in net

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