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Why does the Marginal Physical Product curve slope downwards so soon? The peak of the curve (labelled point A on the graph) represents the maximum. We explain Product: Total, Marginal, Average, and (Marginal) Revenue with video Math and Science . ( - ) Relationship between Marginal Product and Average Product Remember, the word marginal means additional. If we were to graph it-- again, your average is this curve right here-- it goes up at first. Physics · Maths · Chemistry · Biology · English · Economics · History where Q represents the final output and X1 and X2 are inputs or factors of production. Relationship between Marginal Product and Total Product This gives the Total product curve a convex shape in the beginning as variable factor inputs increase.
So the marginal product of labor, then, is defined as just additional output generated by adding one more unit of labor, and that's what we saw on the previous slide. And then I said to you, if we changed it to number of machines, that would make it MPK, or Marginal Product of Capital, which is the additional output generated by adding one more unit of capital. Now we need to look at the production on average. So any average is a total divided by the number of something, right?
So average product is total output divided by the quantity of inputs. So really, we can talk about it as the average product of labor, or the average product of capital. Just as we had the marginal of both of those things, as well.
- The Shape of a Firm’s Cost Curves in Long Run and Short Run
So here, again, I'm sticking with the employees. So we're looking at labor. And so we've already seen total and marginal, now I'm just adding an average column here. And all I've done is I've taken total and divided by the quantity, or the number of employees. So this tells us that, for example, let's say we have three employees, that on average each employee is producing If we were to graph it-- again, your average is this curve right here-- it goes up at first and then falls, just as marginal went up and then fell like that.
Let's talk about actually these two curves and how they're related to one another. So here, where the marginal lies above the average, that would be from here to the left. The marginal is up above the average. Notice how it's pulling the average up.
TOTAL, MARGINAL, AND AVERAGE PRODUCT Managerial Economics
If I were to use a sports analogy-- I think that actually helps before I go into this specific example-- If I were to use a sports analogy, let's say that a quarterback has a certain average. Let's say we're talking about his average touchdown passes per game.
And let's say that his average right now is, on average, he's passing two. So he has two average touchdown passes per game.
That would be, obviously, this curve-- his average. The marginal represents his next game, his next performance.
The Shape of a Firm's Cost Curves in Long Run and Short Run
Because marginal means your additional thing. So if, in the next game, he has a really great game and he has, let's say, five touchdown passes, won't that bring his average of two up? That's what's going on here. So with marginal and average product of labor, when we're here, to the left of this spot, adding another worker, one more, will add more than the average to output.
So we'll pull that average up. As soon as that quarterback now has a really bad game, his marginal performance let's say is 0 touchdown passes, that's going to pull his average down. And that's where the marginal lies below the average. So where a marginal lies below the average, it's going to pull it down. And that would mean that adding another worker will add less than the average to output.
It doesn't mean necessarily that they're going to bring overall output down, it just means that they're going to add less than the average to output.
And that brings us to a concept called diminishing marginal product, which says that the marginal product of capital or labor will begin to fall at some point, holding everything else constant. So right here-- I said I would be talking to you about why the curves were shaped the way that they are.
Notice how total product is increasing except when we hire the sixth employee. But it's increasing at different rates, and that's what marginal product measures.
It measures the rate at which total product is changing. And at first-- look at how the second employee, what he adds to the firm. He adds actually more than even the first worker. Why would that be? Well if you think about it, specialization can kind of explain that. With two people, can't you get so much more done than with just one person?
But remember, in the short run, there's a fixed input. And so there's fixed amount of stuff for these workers to work with.
So at some point-- I just have it set in pretty quickly here to prove my point-- but at some point, specialization kind of runs out. And yeah, hiring more workers is still going to help you produce more. But the next worker won't be as good as the one before. Because there's just not enough stuff for them all to do, all to have specialized devoted tasks. So here, I'm drawing an arrow to where diminishing marginal product sets in, at the third worker.
Total product is still increasing. Hiring another worker or investing in a new machine for capital would still help to increase your numbers, just not as much as the one before. And that's what diminishing marginal product is all about. Here we would never want to hire a seventh employee.
Product: Total, Marginal and Average Tutorial | Sophia Learning
The general relation between total and marginal surfaces throughout the study of economics, especially utility total utility and marginal utilitycost total cost and marginal costrevenue total revenue and marginal revenueand consumption consumption expenditures and marginal propensity to consume. Making Tacos Total and Marginal Product This two-paneled graph for the hourly production of Super Deluxe TexMex Gargantuan Tacos with sour cream and jalapeno peppers that visually illustrates the connection between total product and marginal product.
For the first few quantities of the variable input the number of workerstotal product in the top panel is positive AND the slope of the total product curve increases, it becomes steeper. This corresponds with a positive and increasing marginal product in the bottom panel. For the next several quantities of the variable input, the slope of the total product curve flattens out, although positive, the slope decreases.
This corresponds to a decreasing marginal product in the bottom panel. For the last few quantities of the variable input, the slope of the total product curve in the top panel is negative.
This corresponds with a negative marginal product in the bottom panel. The Law of Diminishing Marginal Returns The prime conclusion to drawn from this is the key role played by the law of diminishing marginal returns in the slope of both the marginal product curve and the total product curve. The "hump shape" of the marginal product curve is a direct reflection of first increasing marginal returns, as marginal product rises to a peak, then decreasing marginal returns and the onset of the law of diminishing marginal returns as marginal product falls.
However, because the marginal product curve is essentially a plot of the slope of the total product curve, the shape of the total product curve also reflects the law of diminishing marginal returns.