Total Product (TP)

Marginal Product (MP)

Change in TP that occurs when the usage of a particular resource changes by 1 unit, all others constant.

MPP = Change in TP/ Change in Variable input

Average product (AP)

AP = TP / Units of the variable input

Marginal product increases because additional workers can specialise and make more efficient use of the fixed resources'
Gains from division of labour and specialisation

Diminishing Returns

Hiring more workers increases total product by smaller and smaller amounts
Overcrowding and congestion of fixed resources by too many variable
In SR, firm cannot simply continue increasing amount of variable input to increase output
In LR, need to increase fixed input

	Created by pr2st almost 11 years ago

International business MIEC Note on MIEC 5: Theory of production, created by pr2st on 01/12/2013.