The production process for typing works best with one worker and one PC. If you add more than one typist, you

get seriously diminishing marginal productivity.

Consider the long run. Suppose the firm’s demand increases to 15 documents per day. What might the firm do

to operate more efficiently? If demand has tripled, the firm could acquire two more PCs, which would give us a

new short run production function as Table 7.12 below shows.

# Typists (L)

1

Letters/hr (TP) 5

MP

5

2

6

2

3

8

1

4

8

0

5

8

0

5

8

0

For K = 1PC

Letters/hr (TP) 5 10 15 17 18 18 For K = 3PC

MP

5

5

5

2

1

0

TABLE 7.12 Long Run Production Function for Typing

With more capital, the firm can hire three workers before diminishing productivity comes into effect. More

generally, because all factors are variable, the long run production function shows the most efficient way of

producing any level of output.
174 7 • Production, Costs, and Industry Structure

7.5 Costs in the Long Run
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