Short-Run Production Function for Tony’s Hat Store 

Quantity of Input 

(workers hired) 

Total Product 

(Total hats produced) 

Marginal Product 

(additional hats 

from each worker)

Average Product 

(hats per worker) 

0 0 

1 10 

2 25 

3 45 

4 60 

5 70 

6 75 

7 70 

Graph TP, MP*, AP, and identify regions of increasing, decreasing, and marginal returns 

 75 

 70 

 65 

 60 

 55 

 50 

 45 

 40 

 35 

 30 

 25 

 20 

 15 

.

 10 

Number of Hats 

 5 

 0 1 2 3 4 5 6 7 

Number of Workers 

*Graph MP between workers 

 Definitions: 

Total Product (TP)= 

Marginal Product (MP)= 

Average Product (AP)= 

The Law of Diminishing Marginal Returns- 

Stage I: Increasing marginal returns 

Stage II: Decreasing marginal returns 

Stage III: Negative marginal returns 

Questions: 

1. How many hats can three workers make? 

2. How many additional hats are made as a result of hiring the 5th worker? 

3. On average, how many hats can 2 workers make? 

4. At what point does marginal product diminish? 

5. Does total product decrease when marginal product falls? 

6. When marginal product is zero, what happens to total product? 

7. The hiring of which worker leads to 20 additional hats being produced? 

8. How many workers does it take to make 60 hats? 

9. What is the result of hiring the 7th worker? Why? 

10. What causes increasing marginal returns? 

11. How does MP affect AP? How is this demonstrated by the curve? 

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