Grades 9-12
Risk and Return Concept Video
Video
This lesson uses a classic video clip to introduce variable and fixed inputs. Students participate in an activity that demonstrates adding additional inputs to a fixed set of inputs that eventually leads to diminishing marginal returns and higher marginal costs of production. A slideshow provides students with economic information and mathematical calculations such as slope. The worksheet portion is a concrete example of the relationship between differing costs using the concept of slopes.
60 Minutes
Profit maximizing firms use marginal analysis to determine whether employing an extra resource is feasible. At its most basic, Marginal Cost (MC) is simply a measure of the rate of change between the Total Cost (TC) and the Quantity of output produced (Q). Using the concept of cost, this lesson explores and connects the concepts of slope, costs, and revenue from an economics point of view.
The lesson uses MC as context for the underlying meaning of the slope as rate of change between two points on the TC curve. Students will calculate sums and differences of costs, the rate of change between two points, and contrast these with averages such as Average Variable Cost (AVC) and Average Cost (AC). By comparing and contrasting Average Cost and Marginal Cost the students will understand the difference between finding average versus finding the rate of change, which economists call marginal.
Round | Number of Workers | Quantity of Output |
Note to teacher: continue with 30-second rounds (adding a worker in each round) until the Marginal Product declines significantly. It is not necessary to have the Marginal Product approach zero or a negative value. Eventually this will happen, assuming there are enough workers using a fixed amount of capital goods (e.g., tools). The number of workers (rounds) will vary. Typically marginal product begins to decline after five to eight rounds.
Note to teacher: student responses may include that hiring more workers does not always mean more profit. The students may erroneously suggest that diminishing marginal product diminishes the firm’s profit; although, this is possible over some ranges of workers, virtually all profit-maximizing firms produce in the range where marginal product is diminishing.
Grades 9-12
Video
Grades 9-12
Lesson
Grades 9-12
Lesson
Grades 9-12
Lesson
Grades 9-12
Activity