Description 
The narrator revisits Marge's 
experimentation with hiring new workers
and its effect on total product (TP) and 
marginal product (MP).  The narrator 
then analyzes long run versus short run
economic conditions of Ostrich Burger,
describing fixed and variable inputs.  An 
analysis of Marge's experimentation with 
different levels of labor is used to derive
the total product and marginal product 
curves.  An analysis of these curves 
proves the intuitive assumption of 
increasing then decreasing marginal 
product.
 

Audio Transcript 

Narrator: Marge is aware of increased market demand for O-burgers. She’s hired more workers to increase production, but in doing so she has crowded her kitchen and outgrown her facility.

Marge: Now that I’ve got all these workers in here, I see the problem clear as a bell. It’s become too crowded, there’s barely room to breathe, and 350 burgers a day is just about the most we can make in this restaurant.

Narrator: Marge’s restaurant building is a fixed resource. A fixed resource is defined as a resource that cannot be changed in the short term. Marge needs to build a bigger and better restaurant, and that takes time. For the time being, Marge has only one resource she can control: labor. Labor is a variable resource. Marge can hire and fire workers as she sees fit to adjust to economic conditions.  

Narrator: In economic terms, Marge operates in the short run.  This is a situation in which at least one resource is fixed- in this case her building and her equipment.

Narrator: In the Long run, no resources are fixed.  Marge can build a new restaurant, add grills, soda fountains, or fryers. But once she's acted upon these decisions,  she is bound by them and is faced with a new short run situation.

Narrator: Let’s examine her current dilemma. As more labor was added, Marge saw her output, referred to as total product, increase quickly then more slowly until adding a 7th worker did not add anything more to production.   This phenomenon is called diminishing marginal return. 

Narrator: When Marge was alone, she had to do it all--take orders, cook burgers, fill the sodas, and clean up when there was time. Adding a cook  increased the number of  burgers she could produce in a day to 100.    Adding a person to handle food preparation helped even more.  Specialization made each of them more productive.  

Narrator: When Marge added a counter person, a drinks person, and a dishwasher she noticed that her output had increased,  but not as dramatically. By the time Marge added a second cook, workers barely had room to move and output actually decreased.  

Narrator: By connecting all of the points on the graph, we derive the total product curve.

Narrator: If we examine the change in output as each worker is added, we derive the marginal product curve. Let’s consider Marge’s worker #1.  By adding the second and third worker, Marge was able to increase output substantially.  With these workers she experienced increasing marginal productivity.  

Narrator: When the fourth worker was added, total output increased, but not as much.  With the addition of this worker, marginal product declined. This trend continues as the fifth and sixth workers are added. Marginal product keeps decreasing but remains positive while total product reaches its maximum when Marge is joined by five additional workers.  

Narrator: When the seventh worker is added, marginal product becomes negative and total product decreases.  Like all operations, Ostrich Burger has a point where, as more workers are added, the marginal product becomes smaller and smaller. 

Narrator: This demonstrates the law of diminishing marginal productivity, which states that additional units of a variable resource eventually yield decreasing marginal product.

--End--           Back