What is Total Product | Average Product | Marginal Product?
In previous sessions, we discussed the concepts of Total Product, Average Product and Marginal Product.
We have discussed that in the short run, not all factors can be variable i.e., there are factors of production which are fixed or constant i.e., cannot be varied or alter to change the total output or production. Now in our discussion for simple understanding, we have taken only two factors of production or input for undertaking the production process which are Labor (L) and Capital (K).
So now, we discuss the production of a firm in the short run keeping one of the factor here Capital (K) as constant and the other factor or input Labor as Variable. Now in these context where one of the input i.e., labor is variable and the other input i.e., capital is fixed, we discuss the relationship between the variable input or variable factor of production and the total output i.e., how the change in variable input will affect the total output. This relationship is discussed in three segments which are Total Product, Average Product and Marginal Product.
Now in the short run, we vary a single input and keep other inputs constant. Thus now for different level of that variable input, we get different level of total output. The relationship between the variable input and the total output keeping all the other input constant or fixed is called the Total Product of the variable input. Total Product of the variable input is also referred to Total Return to the variable input or Total Physical Product of the variable input.
The output per unit of variable input is called the Average Product of the variable input.
The change in the output per unit of change in variable input when all the other inputs are kept constant is called the Marginal Product of the variable input.
What is Law of Diminishing Marginal Product | Variable Proportions | Diminishing Marginal Returns?
Then we discussed the Law of Diminishing Marginal Product also known as Law of Diminishing Marginal Returns also known as Law of Variable Proportions.
The Law of Diminishing Marginal Product states that the Marginal Product of a variable input in the initial phase increases with the increase in the quantum of variable input up to a point and after that point, further increase in the employment or use of that variable input results in decrease in Marginal Product of that variable input. This phenomenon is also known as Law of Variable Proportion because the force behind this phenomenon is the change in factor proportion. Factor proportions are the ratio of inputs employed in the production process. As the employment of variable input increases in the short run with the other inputs held constant it alters the factor proportions of the production process. And up to a level the change in the factor proportion leads to affect positively the total output as the Marginal Product of the variable input keeps increasing. But after a certain level of employment of the variable input, further employment of the same results into factor proportions changing to a mark which then affects negatively the total output as it results into decrease in the Marginal Product of the variable input.
Now we will move on to discuss the graphical representation of the Total Product Curve, Average Product Curve and the Marginal Product Curve.
Shape of Total Product (TP) Curve
As the employment of the variable input increases keeping all the other inputs constant, the total output increases, which can be seen in the below graphical representation.
In the above graph, the x-axis represents the variable input i.e., here Labor and the y-axis represents the output, assuming keeping all other inputs constant. Now we can see, as the amount of labor increases, the output increases which can be seen in the Total Product Curve. The Total Product Curve for a typical firm as shown above is positively shaped. With L units of labor i.e., variable input, the firm can produce q quantity of output keeping all other inputs fixed or constant.
Shape of Average Product (AP) Curve and Marginal Product (MP) Curve
According to the Law of Diminishing Marginal Product, the Marginal Product of a variable input initially rises as the level of employment of that variable input rises and after a certain point i.e., after a certain level of employment of that variable input, the Marginal Product of the variable input starts diminishing. Hence even the curve of the marginal product mirrors the above phenomena and it initially increases and then falls thus looks like an inverted U – shaped curve. We can see the same in the below graphical representation.
Now in the above we can also see the shape of the Average Product Curve.
Initially when the 1st unit of variable unit is introduced the Average Product and the Marginal Product are same. As the amount or units of labor increases, the Marginal Product starts increasing. Average Product is simply the average of the sum of Marginal product. Thus Average Product also rises with the marginal product but lesser than the Marginal Product. Then as discussed earlier, after a point the Marginal Product starts falling. But still even as the Marginal Product starts falling, the Average Product keeps rising till the point Marginal Product is higher than the Average Product. But as Marginal product falls sufficiently, the value of Marginal Product becomes less than the Average product. And at this point when the Marginal Product falls below Average Product, the Average product also starts falling.
So to say, even the average product rises initially, and as Marginal Product falls sufficiently and its value comes below the Average Product, the value of Average Product starts falling. Hence the shape of the Average Product Curve is also inverted U – shaped.
Till the time Average Product is increasing, it denotes that the Marginal Product > Average Product. When the Marginal Product = Average Product, the Average Product Curve is at its maximum. And when the Marginal Product < Average Product, the Average Product curve starts falling.
So the Marginal Product Curve cuts the Average Product Curve from above at a point where the Average Product Curve is at its maximum. In the above graph it can be seen at the point P, the Average Product Curve is at its maximum. And thus, the Average Product of the input is maximum at L which corresponds to the point P. On the left of L, Average Product is rising and Marginal Product > Average Product and on the right of L, Average Product is falling and Marginal Product < Average Product.
Conclusion
In this session, we discussed in detail the shape of Total Product Curve, Average Product Curve and the Marginal Product Curve.
In previous sessions, we discussed the concepts of Total Product, Average Product and Marginal Product.
We have discussed that in the short run, not all factors can be variable i.e., there are factors of production which are fixed or constant i.e., cannot be varied or alter to change the total output or production. Now in our discussion for simple understanding, we have taken only two factors of production or input for undertaking the production process which are Labor (L) and Capital (K).
So now, we discuss the production of a firm in the short run keeping one of the factor here Capital (K) as constant and the other factor or input Labor as Variable. Now in these context where one of the input i.e., labor is variable and the other input i.e., capital is fixed, we discuss the relationship between the variable input or variable factor of production and the total output i.e., how the change in variable input will affect the total output. This relationship is discussed in three segments which are Total Product, Average Product and Marginal Product.
Now in the short run, we vary a single input and keep other inputs constant. Thus now for different level of that variable input, we get different level of total output. The relationship between the variable input and the total output keeping all the other input constant or fixed is called the Total Product of the variable input. Total Product of the variable input is also referred to Total Return to the variable input or Total Physical Product of the variable input.
The output per unit of variable input is called the Average Product of the variable input.
The change in the output per unit of change in variable input when all the other inputs are kept constant is called the Marginal Product of the variable input.
What is Law of Diminishing Marginal Product | Variable Proportions | Diminishing Marginal Returns?
Then we discussed the Law of Diminishing Marginal Product also known as Law of Diminishing Marginal Returns also known as Law of Variable Proportions.
The Law of Diminishing Marginal Product states that the Marginal Product of a variable input in the initial phase increases with the increase in the quantum of variable input up to a point and after that point, further increase in the employment or use of that variable input results in decrease in Marginal Product of that variable input. This phenomenon is also known as Law of Variable Proportion because the force behind this phenomenon is the change in factor proportion. Factor proportions are the ratio of inputs employed in the production process. As the employment of variable input increases in the short run with the other inputs held constant it alters the factor proportions of the production process. And up to a level the change in the factor proportion leads to affect positively the total output as the Marginal Product of the variable input keeps increasing. But after a certain level of employment of the variable input, further employment of the same results into factor proportions changing to a mark which then affects negatively the total output as it results into decrease in the Marginal Product of the variable input.
Now we will move on to discuss the graphical representation of the Total Product Curve, Average Product Curve and the Marginal Product Curve.
Shape of Total Product (TP) Curve
As the employment of the variable input increases keeping all the other inputs constant, the total output increases, which can be seen in the below graphical representation.
Shape of Average Product (AP) Curve and Marginal Product (MP) Curve
According to the Law of Diminishing Marginal Product, the Marginal Product of a variable input initially rises as the level of employment of that variable input rises and after a certain point i.e., after a certain level of employment of that variable input, the Marginal Product of the variable input starts diminishing. Hence even the curve of the marginal product mirrors the above phenomena and it initially increases and then falls thus looks like an inverted U – shaped curve. We can see the same in the below graphical representation.
Initially when the 1st unit of variable unit is introduced the Average Product and the Marginal Product are same. As the amount or units of labor increases, the Marginal Product starts increasing. Average Product is simply the average of the sum of Marginal product. Thus Average Product also rises with the marginal product but lesser than the Marginal Product. Then as discussed earlier, after a point the Marginal Product starts falling. But still even as the Marginal Product starts falling, the Average Product keeps rising till the point Marginal Product is higher than the Average Product. But as Marginal product falls sufficiently, the value of Marginal Product becomes less than the Average product. And at this point when the Marginal Product falls below Average Product, the Average product also starts falling.
So to say, even the average product rises initially, and as Marginal Product falls sufficiently and its value comes below the Average Product, the value of Average Product starts falling. Hence the shape of the Average Product Curve is also inverted U – shaped.
Till the time Average Product is increasing, it denotes that the Marginal Product > Average Product. When the Marginal Product = Average Product, the Average Product Curve is at its maximum. And when the Marginal Product < Average Product, the Average Product curve starts falling.
So the Marginal Product Curve cuts the Average Product Curve from above at a point where the Average Product Curve is at its maximum. In the above graph it can be seen at the point P, the Average Product Curve is at its maximum. And thus, the Average Product of the input is maximum at L which corresponds to the point P. On the left of L, Average Product is rising and Marginal Product > Average Product and on the right of L, Average Product is falling and Marginal Product < Average Product.
Conclusion
In this session, we discussed in detail the shape of Total Product Curve, Average Product Curve and the Marginal Product Curve.
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