While studying for my economics test, I’ve learnt about a mathematical theory that states that Marginal Product(MP) is inversely proportional to Marginal Cost(MC) and that Average Variable Cost is inversely proportional to Average Product, ie MC= (1/MP) and AVC = (1/AP) What I wonder is, if either MP or AP is zero, wouldn’t that give a value of infinity to MC and AVC? What is the problem here?
First off, any Economic theory is just that, a theory. So don’t necessarily expect 1:1 correlations with the Real World. In this case, can you think of a situation where either Marginal Product or Average Product would be equal to zero?
What Ewdlorr said.
I’m a little rusty, but I’m not sure it’s a one-to-one correlation like that.
From http://coba.shsu.edu/micprin/EcoGloss/mq.htm#MP
“Marginal product is the extra output produced as a result of a small increase in the variable input. It is calculated as the increase in total product divided by the increase in the variable input employed, when the quantities of all other factors are constant.”
Investing one more unit of input (MC) must result in some sort of product (MP), even an immaterial amount, and depending on circumstances it may or may not be at a rate of MC=1/MP. Did the book say this explicitly?
In the short run, capital is fixed, so in a 2 factor model you can only change output by changing labour. If MPL is zero, you cannot increase production any further. Short run MC must be infinite (ie the short run supply curve is vertical). On the other hand if APL=0, production must be 0.
Did you hear the one about the one armed economist?