The government of Canada will invest $89 million in 49 processing projects that will enable dairy, egg, and poultry producers to boost capacity and be more productive by installing automated equipment and technology. — Glacier FarmMedia, February 6, 2024
How will installing automated equipment and technology change a dairy’s total product curve?
Total product (TP) is the maximum output that a given quantity of labor can produce, and a total product curve shows how a firm’s total product changes as the quantity of labor used changes. A dairy worker using automated equipment and technology can produce more cheese (and other dairy products) than a worker using hand-operated equipment, so a dairy that switches to using automated equipment and technology will see its total product curve shift upward.
Exactly how the TP curve changes depends on the details of the production process. Here, we’ll look at an example where a new technology makes workers 50 percent more productive than the old technology.
Figure 1 illustrates the total product curves without and with automation.
How will a dairy’s marginal product curve change?
Marginal product (MP) is the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same, and a marginal product curve shows how marginal product changes as the quantity of labor changes.
We’ll continue to look at a new technology that makes workers 50 percent more productive than the old technology.
Figure 2 illustrates the marginal product curves without and with automation.
How will a dairy’s total cost curve change?
A dairy’s total cost (TC) is the cost of all the factors of production it uses. We separate total cost into total fixed cost (TFC) and total variable cost (TVC).
The firm’s TFC is the cost of its fixed factors of production. For a dairy, TFC includes the cost of milk pasteurizer and filtration systems. The quantities of fixed factors don’t change as output changes, so TFC is the same at all output levels. But even with government help, the fixed cost of using automated technologies is greater than the cost of using an old technology, so TFC increases.
The firm’s TVC is the cost of its variable factors of production. For a dairy, labor is the variable factor, so this component of cost is its wage bill. Total variable cost changes as output changes.
But because a dairy worker using automated equipment and technology can produce more than a worker using an old technology, TVC falls at each level of production.
The TP curve determines the TC curve and the example in Figure 1 creates the TC0 curve in Figure 3. This TC curve has TFC = $100 for old technology. With $200 for new technology, the TC1 curve show that at output levels below 100 gallons a day, total cost increases but at outputs above 100 gallons a day the total cost decreases.
How will a dairy’s marginal cost curve change?
A firm’s marginal cost (MC) is the increase in total cost that results from a one-unit increase in output. We calculate marginal cost as the increase in total cost divided by the increase in output.
Because a dairy worker using automated equipment and other technologies can produce more than a worker using an old technology, MC falls at each level of production.
Figure 4 illustrates the MC curves without and with automation.
Will the government’s investment make diaries more productive?
As dairies use the government investment to switch from old technology to automated equipment and other new technologies, total production will increase (Figure 1), which will lower the marginal cost of production (Figure 4) and make dairies more productive.
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