Alfonso Llanes, studied at Florida International University
In order to better understand the difference between total production and marginal production one needs to focus attention on the concept of diminishing returns and how it applies to production.
The total amount of production by a firm is a function of the levels of input used by the firm. A simple version of this relationship is provided in a table below where the relationship that exists between output for the planned labor use, holds other inputs and technology constant expressed by the ratio:
The table indicates how output matches the planed level of
labor use but as more labor is added increases by smaller and smaller
increments. This example depicts that output even decreases at higher levels of
labor use. It can be observed output declines from 275 to 270 when the level of
labor use increases from 40 to 45 from 7.86
to 6. While average production is between 5 and 10 inputs of labor.
This is a
consequence of the law of diminishing returns as expressed by the ratio of
marginal production.
According to this law, the MP of a variable input declines
as more of it is employed with a given quantity of other fixed inputs. At some
point, the ratio of labor to other factors decreases. The firm can add more
workers but there’s only so much these workers can do without additional
capital i.e., add more space, tools or electricity.
The marginal product (MP) is another useful and
important concept. MP is defined as the additional output that results from the
use of an additional unit of a variable input, holding other inputs constant.
It is measured as the ratio of the change in output (TPP) to the change in the
quantity of labor used. In a graph terms, this can be expressed as:
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