Economists are usually interested to understand the relationship between inputs and outputs to check the production of goods. Inputs and outputs can be linked on various grounds. Sometimes, inputs may be changed while in some cases some inputs may be kept constant to check the various output levels.
Depending on these variable inputs, three types of product outputs can be obtained, namely −
Also known as a total return or total physical product of a variable input, the total product of the variable input is obtained when only one input is kept as a variable while all other inputs are kept constant.
In other words, the total product is an output for a variable input that can change but when the process maintains all other inputs unchanged.
Total product calculation helps firms to understand how much input can be obtained by using a single input while keeping other inputs constant. Therefore, they can measure the required input to get the desired amount of output. Knowing this helps the producers in many ways. They cannot only organize their production levels depending on the total output, but they can also use the optimal amount of the required input when needed. This can reduce the wastage of resources and can let producers use the optimum amount of raw materials.
The average product shows the production output per unit input of the variable. It is a productivity measure.
Average product measures the average output of products for each unit variable input. Therefore, it shows the number of inputs required to produce a certain amount of product output.
Usually, the productivity of input increases with an increase in the average product. To calculate the average product, the total product value of the variable input must be known. Once the total product value is obtained, and it is divided by the number of inputs invested, the average product value can be obtained.
Moreover, the relation between total product and the factors of production is linear, but once the limit of production is reached, limiting factors start to set in.
The following example would make this concept clear.
Suppose a producer of men’s shirts hand-stitched the shirts. He has four employees and in a week, he gets 100 shirts ready. Therefore, the average product stitched by the producer is 100/4 = 25
Now the producer needs to increase the production palpably due to a huge order and so he recruits 26 more employees. Now he sees that the weekly production has reached 780. So, the average product has increased to 780/30 = 26.
Marginal product is referred to as the change in output for a unit change in the input of one variable when other variables are kept unchanged.
In other words, marginal product is the change in output when one unit of input of one variable is added keeping the other variables constant. In simpler words, it shows how many additional output products will be produced for the addition of one unit of input, like labor, materials, or overhead.
The marginal product calculates the total change in output for an additional amount of input. The idea behind calculating marginal product is to isolate each input and check the output.
The following example would make this concept clear.
Suppose, the shirt maker stitches 6 shirts a week alone. When he recruits another person, the total output changes to 11. So, for each additional input, the change in output is 5, which is the marginal product.
The concept of marginal product is related to the total product in the following ways −
The following results can be seen when average and marginal products are considered −
The following results can be seen between average product and total product −
The diminishing marginal productivity states that the slight increase in input in a production cycle advances production marginally and may even become negative after a certain point.
It has been noted that when the input is added in the initial phase, it helps to increase production. However, with a gradual increase of the same input, when all other inputs are kept constant, the output per unit goes on decreasing. After a certain point, this level of production may get zero and even negative.
For example, when an excess of raw materials is added to the production process, it may reduce the output instead of increasing it. The law of diminishing marginal utility is applicable to the production of all types mentioned above.
The concepts of total product, average product, and marginal product are helpful in determining the optimum productivity from a production process. While the limiting process of additional productivity is applicable for enhanced production, knowing the limiting point helps to avoid wastage and get maximum productivity.
Having the knowledge of the total product, average product and marginal product helps economists understand the positive sides and nuances of production processes. This ultimately results in an overall increase in production without having to compromise productivity.
Finally, the concepts of production would remain central to economic theories because they address one of the main concerns of the economy - Production.
Q1. Between the relation of total product and marginal product, when does a marginal product become zero?
Ans. When the value of the total product reaches its maximum value, the marginal product value becomes zero.
Q2. What is meant by average product?
Ans. The average product is defined as the output per unit of the variable factor.
Q3. Why are the concepts of total product, average product, and marginal product meaningful?
Ans. The concepts of total product, average product, and marginal products are important because they help in increasing production levels to the maximum.
Q4. What is the relation between the total product and the average product?
Ans. Total product = Average product x number of factors
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