What is Marginal Product?

//What is Marginal Product?
What is Marginal Product? 2017-10-05T21:27:55+00:00

Definition: Marginal product, also called marginal physical product, is the change in total output as one additional unit of input is added to production. In other words, it measures the how many additional units will be produced by adding one unit of input like materials, labor, and overhead.

What Does Marginal Product Mean?

What is the definition of marginal product? This measurement is really a relationship between inputs and outputs. It answers the question, how many outputs will we get for a single input?

The marginal product formula calculates this relationship by dividing the total change in output by the total change in a particular input. In other words, MP is equal to the slope of the total product curve, when it is plotted with the specific type of input on one axis and the amount of production on another axis.

It’s important to only analyze one input at a time and keep all other inputs equal. This way each input is isolated and can be tested properly. Also, keep in mind that MP is are measured in tangible units. There is no such thing as a fraction of an input.

Let’s look at an example.

Example

Imagine, there is a chocolate factory that produces the highest quality truffles. When there are no chocolatiers in the factory, logically, no chocolate will be produced. When there is one chocolatier in the factory, he can make 6 truffles per hour and a grand total of 6 truffles will be the factory’s total hourly production. When there are two chocolatiers in the factory, a grand total of eleven truffles are produced each hour. Thus, one additional unit of labor produced five extra units of chocolate, when there are two men making chocolate in the factory as compared to one.

If the MP is increasing, known as increasing marginal returns, each unit of input will contribute more to the total output than the last input unit. However, a point will be reached when marginal physical product will no longer increase per unit. When not scaled or calculated properly, the MP in the factory may go down even as the number of chocolatiers goes up, creating a situation known as diminishing marginal returns. MP can even become negative and that is known as negative marginal returns.

Summary Definition

Define Marginal Product: Marginal product means the additional output that a firm achieves by adding one additional unit of input in the production process.