Evaluating a Consultant's Production Advice
A firm's production process is represented by a graph showing total output on the vertical axis as a function of a single variable input on the horizontal axis. The production curve starts at the origin and is concave (it increases at a decreasing rate). A consultant analyzes the graph at a specific operating point 'X' (not the origin) and makes the following statement to the firm's manager:
'At this level of input, the productivity of the last unit of input added was greater than the average productivity of all units used so far. Therefore, you should definitely continue to add more of this input.'
Critically evaluate the consultant's statement and the resulting recommendation. In your evaluation, you must refer to the geometric properties of the graph at point X (specifically, the slopes of relevant lines) to support your conclusion about the relationship between the two measures of productivity mentioned.
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Consider a production function graph where output is on the vertical axis and a single variable input is on the horizontal axis. The function is shaped as a curve that starts at the origin and increases at a decreasing rate (i.e., it is concave). At a specific point 'P' on this curve (not at the origin), two lines are drawn: Line A is tangent to the curve at point P, and Line B is a straight line drawn from the origin (0,0) to point P. Based on the geometric properties of these lines on such a curve, what is the relationship between their slopes?
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Evaluating a Consultant's Production Advice
Consider a production process where output (on the vertical axis) increases at a decreasing rate as a single input (on the horizontal axis) increases. For any given point on the production curve (other than the origin), match the economic concept to its correct graphical description.
A firm's production process is represented by a concave curve on a graph with output on the vertical axis and a single input on the horizontal axis. At the current operating level, the firm calculates that the output per unit of input is 25 units, and that adding one more unit of input would increase total output by 20 units. This numerical relationship is visually represented on the graph by the fact that the slope of the tangent line at the current operating point is ________ than the slope of the line drawn from the origin to that same point.
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An analyst is examining a production process where output (vertical axis) increases at a decreasing rate as a single input (horizontal axis) is added. This is represented by a concave curve starting from the origin. The analyst makes the following claim about a specific operating point, P, on the curve: 'At point P, the contribution to output from the last unit of input added was greater than the average output per unit of input.' Based on the geometric properties of such a curve, evaluate the analyst's claim.
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