Short Answer
Marginal product and average product are closely related concepts in production. Marginal product shows the additional output from one extra unit of input, while average product shows output per unit of input. Their relationship helps in understanding productivity.
In simple terms, when marginal product is greater than average product, the average increases. When marginal product is less than average product, the average decreases. When both are equal, average product is at its maximum.
Detailed Explanation:
Marginal Product and Average Product
Meaning of Marginal and Average Product
Marginal product (MP) refers to the additional output produced by adding one more unit of a variable input, such as labor, while keeping other inputs constant. It shows how much extra production is gained from an additional unit.
Average product (AP) refers to the output produced per unit of input. It is calculated by dividing total output by the number of units of the variable factor. It shows the average contribution of each unit of input.
Both concepts are important in understanding how efficiently resources are used in production.
When Marginal Product is Greater than Average Product
When marginal product is greater than average product, the average product increases. This happens because the additional unit of input is producing more output than the current average.
For example, if the average product is 10 units and the marginal product of an extra worker is 15 units, the average will rise. This shows improved efficiency and better use of resources.
This situation usually occurs in the early stage of production when resources are being used more effectively.
When Marginal Product is Equal to Average Product
When marginal product is equal to average product, the average product reaches its maximum level. At this point, the contribution of the additional unit is exactly equal to the average contribution.
This is an important point because it shows the most efficient use of resources in terms of average productivity.
After this point, the average product will start to decline.
When Marginal Product is Less than Average Product
When marginal product is less than average product, the average product decreases. This happens because the additional unit of input is contributing less output than the average.
For example, if the average product is 10 units and the marginal product is 5 units, the average will fall. This shows declining efficiency.
This situation usually occurs in the later stages of production due to overuse of fixed resources.
Graphical Understanding
The relationship between marginal product and average product can also be understood graphically. The marginal product curve intersects the average product curve at the maximum point of the average product curve.
Before this point, MP lies above AP, and after this point, MP lies below AP. This shows the changing relationship between the two.
Importance of the Relationship
Understanding the relationship between marginal and average product is important for firms. It helps them decide the best level of input use.
It also helps in improving efficiency and productivity. Firms can avoid overuse or underuse of resources by analyzing this relationship.
This relationship is also useful in studying the stages of production and the Law of Variable Proportions.
Practical Example
For example, in a factory, if each worker produces on average 20 units and a new worker produces 30 units, the average product will increase.
If another worker produces only 10 units, the average product will decrease. This shows how marginal product affects average product.
Conclusion
Marginal product and average product are closely related in production. When marginal product is higher than average product, the average increases, and when it is lower, the average decreases. When both are equal, average product is at its maximum. Understanding this relationship helps in efficient use of resources and better production decisions.