explain the relationship between marginal product and average product
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Relationship between Marginal Product and Average Product
This lesson provides helpful information on Relationship between Marginal Product and Average Product in the context of Inputs and Outputs of Production to help students study for a college level Microeconomics course.
Relationship between Marginal Product and Average Product
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The marginal product curve crosses the average product curve at the maximum of the average product curve.
Marginal product focuses on the changes between production totals and the quantity of resources. Average product shows output at a specific level of input. The peak of the average product curve is the point at which the marginal product curve and average product curve intersect. For the points below (to the left of) this point, the marginal product of the extra input is higher than the average product. For example, if adding another worker increases output by more than the average product of the total labor force, then the marginal product of the new worker will raise the average product amount. Thus, the average product curve must be below the marginal product curve. Similarly, if the new worker adds less product than the average product amount, the average product curve will be above the marginal product curve (for all points to the right of the point of intersection of the two curves). At the point of intersection, the additional worker produces the same as the average product of the total workforce; there will be no change. The marginal product curve may fall to zero, showing that an additional worker will have no impact on production; for example, if there is no more space left to work in, or if machines are working at 100% capacity and all raw materials have been used up.
The marginal product (MP) curve crosses the average product (AP) curve at the point where the average product curve is at a maximum.
Total Product, Average Product and Marginal Product
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Total Product, Average Product and Marginal Product
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Last updated date: 16th Mar 2023
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Business organizations require enough resources for producing a set of products. The resources are limited in nature and thereby affects the production cycle. The behavior of the production cycle will change accordingly with the availability of the resources.
In this context, we will discuss some major economic-production terms like Total Product, Average Product and Marginal Product. Understanding and analysis of these terms are important in a business, especially one which is engaged in the production line. Let us begin our content with the economic and production knowledge delight.
Production and Cost play a Vital Role in a Business
Macroeconomics depicts the large-scale operational procedure of a business or enterprise. Moreover, both production and cost are two indispensable parts of it. Production plays a vital role in the survival of a business amid a competitive market. On the other hand, cost determines the volume of production. At large, any business aims to achieve optimum production efficiency by reducing production costs.
However, for that, one needs to know some fundamental concepts like a definition of production, total product formula, and likewise.
What is Production?
Production is a process of converting resources into products or services.
Production Function: it studies the fundamental difference between physical input and output.Below is its formula.
Y= F (L.K)
Here, Y= Production, L= Labour and K= Capital.
What is the Total Product?
It refers to the total amount of output that a firm produces within a given period, utilising given inputs.
Total Product Formula is
TP= AP*L
Where AP= product/ labour unit; L= Labour
Average Product
It is output per unit of inputs of variable factors.
Average Product (AP)= Total Product (TP)/ Labour (L).
Marginal Product
It denotes the addition of variable factors to the total product.
Thus, Marginal product= Changed output/ changed input.
In other ways, marginal product leads to an increase of total product with the help of additional workers or input.
Relationship between Total Product and Marginal Product
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In order to derive the relation, first students need to remember the total product formula. Moreover, the law of variable proportions explains the relationship between these two.
Marginal Product = ∑ Total Product
This law explains
TP increases at an increasing rate when MP increases. This pattern provides a Total Product Curve with a shape of convex. It then continues till MP reaches the maximum point of TP.
Where MP declines and stays positive, TP increases at a decreasing rate. This pattern provides a Total Product curve with a shape of concave after reaching a point of inflection. It continues till the TP curve reaches its maximum.
When MP is negative and declining, TP declines.
In case MP is zero, TP reaches its maximum.
Relationship between Marginal Product and Average Product
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Just like the relationship between marginal product and total product, the connection between this two is mentioned below.
The marginal product remains above an average product when AP rises.
Similarly, MP remains below AP, in case AP declines.
Average product and marginal product become equal at the maximum AP.
Discussion of Minor Economic Terms related to Production
Short Run
This refers to a period when a particular business can make alterations in variable factors to influence production. However, here the fixed factors remain the same.
Long Run
In the long run, an enterprise can make any changes in all factors to attain the desired production.
Now that you get an overall idea of what is a production and different usages of the total product formula let’s proceed towards the fundamental concept of Costs.
Cost Function
It explains the relationship between the quantity produced and cost.
Thus, C= F (Qx)
Here, C= Production –Cost and Qx= Quantity of x goods produced.
Cost of Production Cost
It refers to the cost incurred to purchase various factor inputs like land and employ labourers. This also includes the expenses of non-factor inputs like fuel, raw material, etc.
Total Cost
It is a total of fixed and variable costs and can be expressed as -
‘I’C= TFC+TVC
Where TFC= Total Fixed Cost
TVC= Total Variable Cost
Implicit Cost
It covers the cost of inputs that are self-owned used in production.
Explicit Cost
It accounts for standard business costs and also directly influences the profitability of a business, for instance, lease payments, wages, etc.
These are some of the most crucial factors of this chapter that students need to learn to perform well in the examination. Understanding these concepts may seem difficult at the beginning, but with proper guidance, it will become easier to comprehend.
Total Product, Average Product and Marginal Product: Formulae, Examples
What is the production function in economics? Let us study the definitions of Total Product, Average Product and Marginal Product in simple economic terms along with the methods of calculation for each. We will also look at the law of variable proportions and the relationship between Marginal product and Total Product.
Production and Costs
Total Product, Average Product and Marginal Product
What is the production function in economics? Let us study the definitions of Total Product, Average Product and Marginal Product in simple economic terms along with the methods of calculation for each. We will also look at the law of variable proportions and the relationship between Marginal product and Total Product.
Table of content1 Suggested Videos
2 Production Function
2.1 Browse more Topics under Production And Costs
2.2 Total Product
2.3 Marginal Product
2.4 Average Product
2.5 Relationship between Marginal Product and Total Product
2.6 Relationship between Average Product and Marginal Product
3 Solved Example for You
Suggested Videos
Introduction to Economics
Nature of Economics
Utility of Economics to Society
Production Function
The function that explains the relationship between physical inputs and physical output (final output) is called the production function. We normally denote the production function in the form:
Q = f(X1, X2)
where Q represents the final output and X1 and X2 are inputs or factors of production.
Browse more Topics under Production And Costs
Production Function
Shapes of Total Product, Average Product and Marginal Product
Return to scale and Cobb Douglas Function
Behaviour of Cost in the Short Run
Long-Run Cost Curves
Learn more about Production Function here in more detail.
Total Product
In simple terms, we can define Total Product as the total volume or amount of final output produced by a firm using given inputs in a given period of time.
Marginal Product
The additional output produced as a result of employing an additional unit of the variable factor input is called the Marginal Product. Thus, we can say that marginal product is the addition to Total Product when an extra factor input is used.
Marginal Product = Change in Output/ Change in Input
Thus, it can also be said that Total Product is the summation of Marginal products at different input levels.
Total Product = Ʃ Marginal Product
Average Product
It is defined as the output per unit of factor inputs or the average of the total product per unit of input and can be calculated by dividing the Total Product by the inputs (variable factors).
Average Product = Total Product/ Units of Variable Factor Input
Source: FreeEconHelp
Relationship between Marginal Product and Total Product
The law of variable proportions is used to explain the relationship between Total Product and Marginal Product. It states that when only one variable factor input is allowed to increase and all other inputs are kept constant, the following can be observed:
When the Marginal Product (MP) increases, the Total Product is also increasing at an increasing rate. This gives the Total product curve a convex shape in the beginning as variable factor inputs increase. This continues to the point where the MP curve reaches its maximum.
When the MP declines but remains positive, the Total Product is increasing but at a decreasing rate. Thisgiveends the Total product curve a concave shape after the point of inflexion. This continues until the Total product curve reaches its maximum.
When the MP is declining and negative, the Total Product declines.
When the MP becomes zero, Total Product reaches its maximum.
Relationship between Average Product and Marginal Product
There exists an interesting relationship between Average Product and Marginal Product. We can summarize it as under:
When Average Product is rising, Marginal Product lies above Average Product.
When Average Product is declining, Marginal Product lies below Average Product.
At the maximum of Average Product, Marginal and Average Product equal each other.
Learn more about the Shapes of Total Product, Average Product, and Marginal Product.
Solved Example for You
Question: What are Returns to a Factor? What do you mean by the Law of Diminishing Returns?
Answer: Returns to a Factor is used to explain the behaviour of physical output as only one factor is allowed to vary and all other factors are kept constant. This is a short-run concept.
The law of diminishing returns to a factor states that as the variable factor is allowed to vary (increase), keeping all other factors constant, the Marginal Product first increases, reaches its maximum and then declines and even becomes negative.
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