ELB503 Practice of Business Education
Simulation and Gaming Techniques
Widget Production in the Classroom: The Law of Diminishing Returns
The following classroom exercise / game can be helpful in bridging this gap between
theory and experience.
Pupils participate in a short-run production exercise in which they produce "widgets."
Fixed inputs include a stack of paper (to conserve paper, use 15cm x 20cm sheets which
you have cut in half prior to class), a stapler, and a work surface (generally half of the
desk or table at the front of the classroom). The variable input is, of course, labor, which
is provided by pupils. The per unit prices of the inputs are fixed and specified in advance.
A widget is produced by taking a sheet of paper, folding it twice, and stapling it.
Production proceeds over a number of production periods of a set length (30 or 45
seconds). In each period, the fixed capital (which is normalised as K = 1) is combined
with an increasing number of units of labor. Pupils are provided with a form (reproduced
below) upon which to record the level of employment of labor and the level of production
of widgets in each period. You can run the first period with zero units of labor. In each
succeeding period, one additional unit of labor (i.e., one pupil) is added to the production
process and the level of production of widgets is observed and recorded.
You can terminate the game after diminishing marginal returns have set in, but before
negative marginal returns have set in. This usually occurs around the fourth or fifth
period, but varies with the group of pupils and the size of the work surface provided (the
smaller the surface, the more quickly congestion and diminishing returns set in). If you
observe negative returns, you'll have to spend some time explaining why some of our
formulas don't work well with negative changes in output.
Once the levels of labor input and their associated total physical products of widgets are
observed, the calculations of average and marginal physical product are routine. But the
concept of marginal physical product becomes clearer to most pupils when they realize
that the marginal physical product of the third unit of labor is just the increase in output
that resulted when the third pupil was brought into the experiment.
Once the prices per unit of capital and labor have been specified (P10 and P5 seem to
work pretty well), pupils can proceed with the calculation of total, average, and marginal
costs. But now these costs can be related to the production process which has just been
observed.
A word of caution is in order at this point. Pupils who participate in this game will exhibit
dramatically different levels of motivation, physical coordination, and, hence, marginal
productivity. As a result, any attempt to graph the production and cost curves generated
by this exercise may generate bizarre results. However, it may be possible to reduce this
problem somewhat through the use of "creative timekeeping" during the course of the
production exercise. This is simply a matter of counting the number of times you hear the
stapler used during a particular period and then adjusting the length of the current period
upward or downward slightly so that the exercise generates the desired results (say,
increasing marginal returns due to specialization in early periods followed by decreasing
marginal returns due to congestion in later periods). As long as these "dynamic
adjustments" are small (say, five seconds or less), pupils are unlikely to notice them and
you may be able to avoid spending time explaining why the textbook theory did not
perfectly describe the data generated in the classroom. And even if you employ this bit of
deviousness, you may still occasionally encounter cases where you are unable to make
the cost curves generated by the exercise look like the cost curves contained in the
textbook. Fortunately, a moment's glance at the cost data will reveal when this is the case
and allow you to suggest to your pupils that they need not try to use the data generated
during the exercise to graph the production and cost curves.
K L TPP APP MPP TFC TVC TC MC AFC
AVC AC
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