What Is the Distinction Between Average Product & Marginal?
When businesses produce goods, they employ labor and equipment or capital to produce those goods. In economics, labor and capital are commonly referred to as inputs of production, while the goods that they produce are called output. Average product and marginal product are common economic concepts that deal with a firm's inputs and outputs.
Other People Are Reading
-
What is Average Product?
-
Average product is the total amount of output a business produces, divided by an input. For example, the average product of labor is total output divided by the total number of workers at a firm. The result is the amount of output that the average worker produces. For instance, if a firm produces 100 cars a month and it employed 10 workers, its average product of labor is 10 cars, meaning each worker produces 10 cars a month on average.
Marginal Product
-
Marginal product is the amount of additional output a firm produces with one additional unit of input. For example, the marginal product of labor for a firm is the additional amount of goods that it produces when it hires one additional worker. If a firm had 10 workers that produced 100 cars a month and hiring an additional worker increased its monthly production to 109 cars, the marginal product of labor is 9, because the new worker caused output to increase by 9.
-
Diminishing Marginal Returns
-
Firms that produce goods are often said to be affected by diminishing marginal returns. Diminishing marginal returns means that marginal product decreases at some point as a firm employs more inputs. As a factory hires more and more workers, at some point the next worker hired will increase output by an amount less than the worker hired before him.
Marginal Revenue Product
-
Marginal revenue product is the additional amount of revenue a firm gains by employing one more unit of input. For instance, if hiring one more worker allows a firm to produce 9 additional cars a month and the firm sells cars for $10,000 each, the marginal revenue product of hiring the additional worker is $90,000. If the cost of hiring a new worker is greater than his marginal revenue product, hiring the worker will cause the firm to lose money.
-
References
More Like This
Comments
-
good website for economics related issues.
