What is Marginal Product?

Marginal product refers to the change in output that results from adding one more unit of input, while holding all other inputs constant. It is a measure of the additional output that is produced by increasing the quantity of a particular input. Marginal product is an important concept in economics and production theory, as it helps businesses and policymakers understand the relationship between inputs and outputs in the production process.

Marginal Product

The marginal product of a factor of production (e.g., labor, capital) is the additional output produced by employing one more unit of that factor, holding all other factors of production constant. It is calculated as the change in output divided by the change in the quantity of the factor used:

Marginal Product = Change in Output / Change in Factor Quantity

Interpretation:

- A positive marginal product indicates that adding an additional unit of the factor leads to an increase in output.
- A zero marginal product indicates that adding an additional unit of the factor does not change output.
- A negative marginal product indicates that adding an additional unit of the factor leads to a decrease in output.

Economic Significance:

- Marginal product is essential for understanding the law of diminishing marginal returns, which states that as more units of a factor are added, holding other factors constant, the marginal product eventually decreases.
- The marginal product curve slopes downward, indicating diminishing returns.
- Firms use the concept of marginal product to determine the optimal quantity of each factor to employ to maximize output or minimize costs.

Example:

Suppose a factory employs 10 workers and produces 100 units of output. The factory then hires one more worker and increases output to 105 units. The marginal product of the additional worker is:

Marginal Product = (105 - 100) / (11 - 10) = 5

This means that each additional worker adds 5 units to the factory's output.