Marginal Product:
The additional output produced as a result of employing an additional unit of the variable factor input is called the Marginal Product. Thus, we can say that marginal product is the addition to Total Product when an extra factor input is used.
Marginal Product = (Change in Output)/(Change in Input)
Thus, it can also be said that Total Product is the summation of Marginal products at different input levels.
Total Product = ∑Marginal Product
Average Product
It is defined as the output per unit of factor inputs or the average of the total product per unit of input and can be calculated by dividing the Total Product by the inputs (variable factors).
Average Product = (Total Product)/(Units of Variable Factor Input)
Relationship between Average Product and Marginal Product
There exists an interesting relationship between Average Product and Marginal Product. We can summarize it as under:
- When Average Product is rising, Marginal Product lies above Average Product.
- When Average Product is declining, Marginal Product lies below Average Product.
- At the maximum of Average Product, Marginal and Average Product equal each other.
The law of diminishing returns to a factor states that as the variable factor is allowed to vary (increase), keeping all other factors constant, the Marginal Product first increases, reaches its maximum and then declines and even becomes negative.
