Economics » Theory of Production » Concepts of Production

Concepts of Production

Concepts of Production

In the production process, the output or product may be described in three (3) ways in economics: Total Product (TP), Average Product (AP), and Marginal Product (MP).

1) Total Product (TP):

Total Product is the maximum output that a firm can produce over a given period of time when it employs a given set of inputs.

2) Average Product:

Average Product is the output per unit of the variable factor employed. In other words, it is the productivity of the variable factor. It is measured by dividing Total Product (TP) by the amount of variable factor employed i.e.

\(AP = \cfrac{TP}{\text{Variable factor employed}}\)

Average Product is measured in respect of a variable factor. For instance, where the variable factor is labour (L), then, it is the Average Product of Labour (APL) or the productivity of labour that we can measure as:

\(AP_L = \cfrac{TP}{L}\)

From this, it can be gotten that \(TP_L = AP_L \times L\).

3) Marginal Product (MP):

Marginal Product is the change in the Total Product resulting from the use of one more (or less) unit of a variable factor. It may also be explained as the rate of change in Total Product with respect to a variable factor i.e.

\(MP = \cfrac{\Delta TP}{\Delta \text{Variable Factor}}\)

Where \(\Delta\) = Change.

For example, the Marginal Product of Labour (MPL) is measured as:

\(MP_L = \cfrac{\Delta TP}{\Delta L}\)

Table: A Short-Run Production Schedule

Capital (\(K\))

Labour Units (\(L\))

Total Product of Labour (\(TP_L\))Average Product of Labour (\(AP_L\))Marginal Product of Labour (\(MP_L\))

The table above shows a short-run production schedule. It is a short-run schedule because it has a fixed input (capital) as well as a variable input (labour). From Table 8.1, it is observed that as the employment of the variable factor (labour) increases, Total Product also rises from zero (0) to six hundred and sixty (660) when the employment of labour is seven (7). Any additional employment of units of labour (i.e. when labour is eight (8) units and above) causes the Total Product to decline to four hundred and sixty (460) when ten (10) units of labour are employed.

The Average and Marginal Products of Labour as depicted in Table 8.1 increase, but, both eventually decline. Marginal Product declines to zero (0) and even turns negative after the employment of the seventh unit. Average Product, on the other hand, declines but, remains positive so far as Total Product remains positive.

Figure: Total Product, Average Product, and Marginal Product Curves

The figure above is plotted from the table above. The figure shows the relationship between MPL, APL, and TPL. The MPL curve cuts the APL curve at the maximum of the APL curve. The APL curve rises as long as the MPL curve is above it. At the highest point of the MPL curve, the TPL curve starts to experience diminishing returns to variable proportions. At the maximum of the TPL, MPL is equal to zero (i.e. the MPL curve intersects with the horizontal axis). When APL begins to decline, the MPL curve is below the APL curve. APL rises and falls, but never reaches zero (0).

Continue With the Mobile App | Available on Google Play

[Attributions and Licenses]

This is a lesson from the tutorial, Theory of Production and you are encouraged to log in or register, so that you can track your progress.

Log In

Share Thoughts