Question of the Day: Day Eight

Assume that Firm X buys varying quantities of labor from a market with many buyers and sellers. The laborers hired by Firm X are combined with fixed amounts of capital and land to produce a good called apples. Let's say that Q represents the output of apples and that L is a measure of the number of units of labor hired by Firm X. Assume further that Firm X can use a production function to determine how many units of apples it can produce with a given quantity of labor. In other words, if Firm X hires 5 laborers, or 10 laborers, or any number of laborers, then the production function tells Firm X how much output those laborers will produce for the firm.

We'll assume that the production function (described above) is as follows:

Q = 10(10L)0.5 (i.e. Q equals 10 times the square root of 10 times L)

1) What is the average product of labor if L = 10?

2) What is the marginal product of labor if L increases from 10 to 11?

3) Is the average product of labor currently increasing or decreasing? Explain.