Total product, average product and marginal product

In the background to supply, we notice about the terms “total product”, “marginal product” and “average product”. These three figures are the foundation upon which the analysis of short-run production for a firm is analyzed.

Total product is the total quantity of output produced by a firm for a given quantity of inputs. The usual framework is to analyze total product when in a variable input (labor) changes, for a given amount of a fixed input (capital).

Diagram 1

In diagram 1, as the curve shows, the more labor hours you used, the more output of product before the point Tmax. After the curve go through the point Tmax, the more labor hours the less output. When we constructing this curve, it is assumed that total product changes from changes in the quantity of a variable input like labor, while we hold one or more other inputs, like capital, fixed. (Q= output, L=input)In short run the firm may be able to vary the amount of labor, but can not change capital.

Marginal product is the change in quantity when one additional unit of input used, keeping all other inputs unchanged. Marginal product usually abbreviated MP, is found by dividing the change in total product by the change in the variable inputs.

MP= DQ/DL (holding K constant)

Diagram 2

In diagram 2, the marginal product curve is related to the total product curve in diagram 1. If the total product curve has a positive slope (upward sloping) then marginal product is positive. If the total product curve has a negative slope (downward sloping), then marginal product is negative. If the total product curve has a zero slope (horizontal), then marginal product is zero. Moreover, if the total product curve has a positive and increasingly steeper slope, then the marginal product is positive and rising. If the total product curve has a positive and decreasingly steeper slope, then the marginal product is positive but falling. Therefore, if total product curve is raising steeply, an extra input(labor) is efficiency, if total product curve is falling steeply then an extra input(labor) is inefficiency.

Average product is the quantity of total output produced per unit of a variable input, holding all other inputs fixed. It is found by dividing total product by the quantity of the variable input.

AP=Q/L (holding K constant)

Diagram 3

In diagram 3, the average curve is related to the marginal curve in diagram 2. If marginal product is less than average product, then average product declines. If marginal product is greater than average product, then average product rises. If marginal product is equal to average product, then average product does not change. In other words, if the marginal product curve is under the average product curve, then average product declines. If the marginal product curve is above the average curve, then average product rises. When these two curves intercept, then average product does not change.

We can distinguish diagram 3 into 3 stages. In the first stage, the fixed input grossly underutilized; specialization and teamwork cause the average product to increase when additional L is used. In the second stage, specialization and teamwork continue to result in greater output when additional L is used; the fixed input being properly utilized. In the last stage, fixed input capacity is reached; additional L causes output to fall. In other words, initially, an extra input (labor) is very productive and efficiency. Later, an extra input (labor) is less productive and inefficiency. Even later, an extra input has no productive and totally inefficiency. The reason that cause this is after the firm products reach the point Tmax, the extra labor become to the bothering of the firm because the capital stay constant. For example, if a firm needs to decrease the expense of other inputs (eg. material) in order to increase its expense of wage of labor if the firm reaches its capital limit. In the other hand, if the firm wants to increase its total product by increasing expense of wage of labor, the only way is increase their capital input, the expansion of the firm.

To conclusion, total product and total product curve show you how many input(labor) will reach the firm’s production capacity and keep those worthless input(labor) out from the firm except the firm wants to speed up their produce and reduce the amount of their produce. Average product and average product curve show you whether the labor productivity is efficiency or inefficiency in order to change your amount of your input(labor) if there is an inefficiency circumstance. Marginal product and marginal product curve show you whether one more extra input is efficiency or inefficiency in order to make decisions about change the firm’s input(labor) if there is required. So therefore, proved that as I said in the beginning, these three terms are the foundation information and methods of the short-run analysis of a firm.