This is the optimum point.īefore this point, the firm can still increase the total output by adding more inputs. Zero marginal product occurs when adding an input does not result in an increase in output. The addition of one labor produces 1 additional unit of output. Constant marginal productĬonstant marginal product occurs when an increase in output equals an increase in input. In the table above, it occurs in the workforce range of 4-9 people.Īnother term for decreasing marginal product is diminishing the marginal product, decreasing marginal return. However, the percentage increase in output is lower than the percentage increase in input. In this situation, the total output is still growing. The extra input unit produces less output than the previous input. Decreasing marginal productĭecreasing marginal product occurs when the marginal product is positive, but at a decreasing rate of growth. It occurs because the company derives significant benefits from teamwork or task specialization. It shows you that the extra unit of input produces a higher output than the previous input. When the marginal return is positive and increases, total output grows at a higher percentage of the input increase. For example, from the table above, the company posted increasing returns until the number of workers was three. Here is the data: LaborĪn increasing marginal product is when the marginal product’s value is positive and increases when it adds input. For ease of explanation, I assume the input is labor. Each has an influence on the company’s total output. The marginal product can be equal to zero, positive (more than 0), or negative. The relationship between marginal product and the total output Marginal product curve and total output curve To do so, the company increased its employees from 1,000 workers to 1,500 workers. For example, the company increased its production from 1,000,000 units to 1,200,000 units in line with strong demand. Meanwhile, if the denominator is the change in capital, we call it the marginal product of capital. Specifically, we call the result of the marginal product of labor. If you focus on the labor input, the denominator in the above formula is the number of workers. Marginal product = Change in output / Change in quantity of input The following is the marginal product formula: In this case, you must choose one input variable as the denominator, whether it be labor or capital. To calculate the marginal product, you divide the change in total output by the change in input. Marginal product curve How to calculate marginal product
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