Total Average and Marginal Product
Starting with a firm’s production function, we can calculate three important production concepts: total, average, and marginal pr~ucL Webegin by computing the total physical product, or total product, which designates the total amount of output educed, in physical units such as bushels of wheat or number of sneakers. Figure 6-1 (a) on page 110 and column (2) of Table 6-1 on page 111 illustrate the concept of total product, For this example, they show how total product responds as the amount of labor
applied is increased. The total product starts at zero for zero-labor and then increases as additional units of labor are applied, reaching a maximum of 3900 units when 5 units of labor are used.
Once we know the total product, it is easy to derive an equally important concept, the marginal product, Recall that the term “marginal” means “extra.” The marginal product of an input is the extra output produced b)’ I additional unit of that input while
other inputs are held constant, For example, assume that we are holding land,machinery, and all other inputs constant, Then labor’s marginal product is the extra output obtained by adding 1 unit of labor. The third column of Table 6-1 calculates the marginal product. The marginal product of labor starts at 2000 for the fint unit of labor and then falls to only 100 units for the fifth unit. Marginal product calculations such as this are
FIGURE 6.1. Mar Jinal Product Is rom Total Product Diagram (a) shows the total product curve ming as additional inputs of labor are added, holding other things constant. However, total product ri~ubv smaller and smaller increments as additional unit.’ of labor arc added (compare the increments of the first and the fifth worker). By smoothing between points, we get th,’ blue-colored total product curve, Diagram (b) shows the declining s’~’P~of marginal product: Make sure you understand why each dark rectangle In (b) is equal to the equivalent dark rectangle in (a}. The area in (b) under the blue-colored marginal product c;urve (or the slim of the dark rectangles) adds lip to the total product in (a).
crucial for understanding how wages and other factor prices are determined.
The final concept is the average product, which equals total output divided by total units of input. The fourth column of Table 6-1 shows the average product of labor as 2000 units per worker with one worker. 1500 units per worker with two workers. and so forth. In this example. average product falls through the entire range of increasing labor input.
Figure 6-1 plots the total and marginal products from Table 6-1. Study this figure to make sure you understand that the blocks of marginal products in (b) are’ related to the changes in the total product curve in (a).
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