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| Version | User | Scope of changes |
|---|---|---|
| Nov 15 2007, 5:53 AM EST (current) | andyxu | 1 word added, 1 word deleted |
| Oct 29 2007, 9:03 AM EDT | jenniferchoi | 8 words added, 11 words deleted |
Changes
Key: Additions Deletions
Total Product (TP): total output of a particular good/service produced
Marginal Product (MP): extra output or added product associated with adding a unit of a variable resource to the production process MP = (Change in TP/ Change in Labor Input )
Average Product (AP): output per unit of labor input (a.k.a. labor productivity)
Both marginal product (MP) curve and average product (AP) curve presents the Law of Diminishing Returns. At first additional worker yields increasing MP, but when diminishing returns is encountered, MP will decrease, eventually causing AP to decrease as well.
Marginal Product (MP): extra output or added product associated with adding a unit of a variable resource to the production process MP = (Change in TP/ Change in Labor Input )
Average Product (AP): output per unit of labor input (a.k.a. labor productivity)
AP = (TP / Units of Input)Law of Diminishing Returns: As successive units of a variable resource (eg. labor) are added to a fixed resource (eg. capital or land), beyond some point the marginal product that can be attributed to each additional unit of variable resource will decrease.
- Rationale:
If a factory hires more workers to work with a constant amount of capital (ex. equipment), marginal output start to rise as the factory specialize and become more efficient. However, after a certain point, output will increase at a decreasing rate. This is when diminishing returns sets in, because additional workers do not add to as much efficiency per worker. Then at one point, total efficiency is lost because of overcrowding, and marginal product will decrease. - This is why the world CANNOT be fed from a single flower pot.
- The law of diminshingdiminishing returns assumes that all units of labor are of equal quality, each successive worker is presumed to have the same innate ability, motor coordination, education, training, and work experience.
- Graphical Portrayal:
Both marginal product (MP) curve and average product (AP) curve presents the Law of Diminishing Returns. At first additional worker yields increasing MP, but when diminishing returns is encountered, MP will decrease, eventually causing AP to decrease as well.
- When MP lies above AP, AP rises.
- When MP lies below AP, AP falls.
- MP intersects AP at its maximum value
- When MP crosses the X-axis, it signifies a move from diminishing marginal returns to negative marginal returns.
