What one can also calculate from the data is the average product of labour, which gives one an indication of the productivity of labour.
Total, marginal and average product
Variable input
labour |
Total product (TP) |
Marginal product (MP) |
Average product (AP) |
0 |
0 |
--- |
--- |
1 |
500 |
500 |
500 |
2 |
1 500 |
1000 |
750 |
3 |
3 000 |
1500 |
1 000 |
4 |
4 000 |
1000 |
1 000 |
5 |
4 500 |
500 |
900 |
6 |
4 750 |
250 |
792 |
7 |
4 750 |
0 |
679 |
8 |
4 500 |
-250 |
563 |
Average product (AP) is equal to the total product (TP) divided by the number of workers employed.
$$\text{AP} = {\text{TP} \over \text{number of workers}}$$
For instance, for five workers, the average product is:
$$\text { }= {\text {4500} \over \text {5}}$$
$$\text { }= {\text {900}}$$
What one can also observe from the figures is that it first increases and then starts to decrease. This is because of the law of diminishing returns.
Read the following paragraph again and decide whether you understand the meaning. If not work through the example again.
The law of diminishing returns states that, as more of a variable input is used, while all the other inputs are fixed (remain the same), each additional unit of the variable input will eventually produce less and less additional output. In economics, we say that the marginal product (MP) of the variable input declines.