The Law of Variable Proportions Simulation. Important Vocabulary Total Product = how many products are produced (Quality Counts!) Marginal Product = how.

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Presentation transcript:

The Law of Variable Proportions Simulation

Important Vocabulary Total Product = how many products are produced (Quality Counts!) Marginal Product = how many MORE (or fewer) products were produced than the last round

Fixed Costs = costs paid regardless of how much is produced Examples Include : Rent on property Salaries paid (NOT hourly wages ) Interest payments on loans Property Taxes Also known as “overhead”…not to be confused with THIS type of “overhead” BOOM!FLASH!!

Variable Costs = Costs that change depending on how much is produced Examples Include: Hourly wages Electricity Transportation costs Capital goods needed Marginal Cost = how much it costs to produce ONE more product

Total Receipts (a.k.a. Revenue) = how much money is paid for your products Profit/Loss = What is leftover from receipts after subtracting out costs

Debrief Questions 1.What did your group do that increased productivity (List a couple of things). 2. What problems did your group encounter when additional workers were added? 3.Did adding workers lead to better or worse quality products? Why? 4. What could have increased the productivity of your group? (Think about: supervisor’s actions, factors of production)

Complete the table below, then graph the data on the back of your table. # of WorkersTotal ProductMarginal Product (1-0) 23 2 (3-1)

Law of Variable Proportions = output (how much is produced) will change as one input (i.e. land, labor, capital) is varied while others are held constant Three Stages of Production: --Stage 1: “increasing returns” (marginal product increases) --Stage 2: “diminishing returns” (marginal product decreases) --Stage 3: “negative returns” (marginal product is negative) What actions should a producer take at each stage? Why? (Add input? Subtract input? Keep things as they are?) How could we determine the ideal number of workers for our simulation?

Time to Practice… Use the production schedule below to identify each of the three stages of production (at what point does each stage begin?) Number of Workers Total Product Marginal Product Stage of Production (I, II, III)