Posted by Anjali Kaur on Aug 17, 2020

Terms related to Production Concept

It is important to study the terms related to production concept because they help us in understanding the contribution of different factors of production. Terms related to production concept include Total product, which shows total contribution by all factors of production, Average product shows average contribution by all factors of production, and the Marginal product shows the additional production by an additional unit of a factor of production.

In this post I will be discussing:

  1. Total Product
  2. Average Product
  3. Marginal Product
  4. Relationship between TP and MP
  5. Relationship between AP and MP
  6. Numerical on TP, AP, and MP
  7. Test Yourself

Total Product or Total Physical Product (TP/TPP)

Let’s assume labor to be the factor of production. The total product of labor is the amount of total output produced by a given quantity of labor, keeping other things constant.

The total product curve is positively sloped.

TP = Σ MP

TP = AP X L

Average Product or Average Physical Product (AP/APP)

The average product of labor is the output per unit of labor used, keeping other things constant. The shape of the average product curve is ‘hump’ or inverted ‘U’ shaped.

AP = TP/L, where L- Labor

Marginal Product or Marginal Physical Product (MP/MPP)

The marginal product of labor is the change in output per unit of change in the input (labor), keeping other things constant. The shape of the marginal product curve is inverted ‘U’ shaped, but it crosses the X-axis and becomes negative.

MP =  Change in TP / Change in Labor inputs

Tips for TP, AP, MP

AP = TP/L, It never starts from the origin and it can’t be negative

MP=  Change in TP/  Change in L, It never starts from the origin, it can be negative and it is undefined at 0 levels of input employed.

TP = AP X L or TP = Σ MP

Relationship between TP and MP

Tip to understand these relationship, draw their diagram first:

  1. When TP is increasing at an increasing rate, MP also increases.
  2. When TP is increasing at a decreasing rate, MP is falling.
  3. When TP is at its maximum, MP is 0.
  4. When TP starts falling, MP becomes negative.
  5. At the point of inflection, MP is at its maximum.

Point of inflection means a point where the slope of TP changes, that is when TP starts increasing at a decreasing rate, MP reaches its maximum.

Relationship between AP and MP

  1. When MP is greater than AP, AP is increasing.
  2. When MP is less than AP, AP is falling.
  3. When MP becomes equal to AP (MP=AP), AP is at its maximum.
  4. When MP becomes negative, AP remains positive and starts falling.

Numerical on TP, AP, and MP

  1. Calculate AP and MP from the following data:
LaborTPAP = TP/LMP = Change in TP/ Change in L
00
122/1 = 22-0 / 1-0 = 2
255/2 = 2.55-2 / 2-1 = 3
399/3 = 34
41233
5142.82
6152.51

Solution. Just apply formulas for AP and MP as shown above.

Test Yourself

  • Find AP and MP
LaborTPAPMP
00
115
235
350
440
548
  • Find AP and MP
Variable FactorTPAPMP
00
18
220
328
428
520
  • Find TP and AP
Variable factorMPTPAP
124
222
316
412
58
60
7-8
  • Find TP and AP
LaborMPTPAP
13
25
37
45
53
61
  • Find TP and MP
LaborAPMPTP
12
23
34
44.25
54
63.5

Solve them and drop an email at Contact@LearnWithAnjali.com

You can read more about production function here.

Thanks for reading.

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Happy Learning!

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