Answer to Question #231395 in Microeconomics for Maria noor

Question

What economic factor explain the marginal product and average product of labour curve

Answer 1

Average product refers to the total product divided by the labor quantity; i.e., the output per worker. Marginal product is the change in total product due to the addition of an additional unit of labor.

To understand marginal product, you have to understand the law of diminishing marginal returns, one of the most important concepts in all of economics. This law states that as you add more and more a variable resource, say, labor, to a fixed resource, after a certain point, the productivity of each additional unit of that variable resource decreases.

Let’s saw you run a coffee shop. You hire one worker to do everything; take the orders, make the coffee, clean the store, etc. Obviously this would be very inefficient. So you hire another worker. With two workers, things run more smoothly, and you see an increase in revenue. With three workers, things are even better. But you add a fourth worker, and suddenly, your revenue isn’t increasing as quickly as it used to. Even though your total revenue may still be increasing, because of the law of diminishing marginal returns, your marginal product, i.e, the money you make from each additional worker, is decreasing.

The relationship between average product and marginal product can be seen in this graph:

The peak of the MP curve represents the point at which marginal returns begin, and MP and AP intersect at the highest point on the AP curve.