How to Explain the Relationship Between Marginal and Average Products

Maximize your manufacturing output, using average and marginal product.

You own a small business and employ one worker to make your product --- springy toys. Your worker makes a given number of springy toys every day. A recent increase in orders has led you to consider hiring more workers, but you are not certain how many workers you should hire to accommodate the order increase. Marginal product and average product are manufacturing metrics that can help you in decisions like this one. Know how to explain the relationship between marginal and average product.

Instructions

1. Point out that average product is the quotient of product amount, or number of product units, and the number of workers who produce that product amount daily. For example, if one worker produces three springy toys per day, the average product is 3: 3/1 = 3.

2. Explain that marginal product is the amount of additional product, or number of units, produced by an additional worker. For example, if the hiring of another worker increases production by 2 units per day, the marginal product is 2.

3. Work out a hypothetical example to clarify the distinction. For example, one worker produces three springy toys every day; so, the average product is 3: (3/1 = 3). You hire an additional worker and your two workers now produce seven springy toys every day. Your average product now is 3.5: (7/2 = 3.5). Your marginal product is the difference in production after the addition of the second worker. Your marginal product is 4: 7 - 3 = 4.

References

• Portland State University: Production Table
• University of Houston; Chapter 6: Production
• Melbourne Business School; 3.5: Production
• Iowa State University; Chapter 6: Firms and Production