Module 20 krugman 1
Module 20
The Production Function
What’s New in the Fourth Edition?
• Updated cases
• Handouts to use in the classroom
Module Objectives
• What is the firm’s production function?
• Why is production often subject to diminishing returns to inputs?
Teaching Tips
The Production Function
Creating Student Interest
• A good starting point is to talk about the costs of owning a car. Assume that the car is a fixed input
while it is in the garage and a variable input when you drive it. Ask students to think about the fixed
cost of owning a car (as it sits in the garage) and the variable costs of owning a car (as you drive the
car). The fixed costs are depreciation and registration fees, and the variable expenses are gasoline
and maintenance.
• Ask students to brainstorm the fixed and variable inputs used at a fast-food restaurant or at the
student bookstore. List them on the board.
Presenting the Material
Common Student Pitfalls
• What’s a unit? Students can be confused about how to measure a unit of labor. For example, labor
can be measured in hours, days, weeks, or years or as the number of workers. Make sure students
understand that the units used to measure labor do not affect the analysis—as long as you are
consistent in the units you select.
Module Outline
I. The Production Function
A. A production function is the relationship between the quantity of inputs a firm uses and the
quantity of output it produces.
B. Inputs and outputs
1. Inputs can be either fixed or variable.
2. In the long run, all inputs can be changed, but in the short run, at least one variable is
fixed.
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3. The total product curve shows how the quantity of output depends on the quantity of the
variable input for a given amount of the fixed input.
4. The slope of the total product curve is not constant and is equal to the marginal product
of the variable input.
Case Studies in the Text
Economics in Action
Finding the Optimal Team Size—This EIA applies the concept of diminishing returns to team projects.
Ask students the following questions:
1. How does the law of diminishing marginal product apply to teams? (After the fifth worker,
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Handout 20-1
Date_________ Name____________________________ Class________ Professor________________
Fast Food Production
Complete the marginal product of labor column.
Quantity of labor
(workers)
Total production of
hamburgers per hour
Marginal product
of labor
0
0
1
55
2
120
3
190
4
230
5
240
6
245
When does diminishing marginal product set in?
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Answers
Quantity of labor
(workers)
Total production of
hamburgers per hour
Marginal product
of labor
0
0
When does diminishing marginal product set in?
1
2
5
6