Economics Part A

The New Carpenters Production Costs

In these sets of circumtances, the factory experiences declining marginal output, as follows:

 

The second carpenter

The second carpenter’s marginal output is only a half of a single bookcase per day (it takes him two days to complete a full bookcase). The total cost of a bookcase produced by the second carpenter is therefore $230 (two days salary at $90 a day, plus $50 in raw materials).

 

The third carpenter

The third carpenter’s marginal output is only 1/3 bookcase per day (it takes him three days to complete a full bookcase). The total cost of a bookcase made by the third carpenter is therefore $320 (three days salary at $90 per day, plus $50 in raw materials).


The fourth carpenter

The fourth carpenter’s marginal output is only 1/4 bookcase per day (it takes him four days to complete a full bookcase). The total cost of a bookcase built by the fourth carpenter is therefore $410 (four days’ salary at $90 a day, plus $50 in raw materials). 


To summarize, the smaller the amount that each new employee produces per day, the higher are his production costs.  This is the meaning of Increasing Relative Costs.

The New Carpenters Production Costs579The New Carpenters Production Costs