Analysis of firm's Output and Interrelationship between total output, Average output and Marginal output.

1. ANALYSIS OF FIRM’S OUTPUT
S.A. QURESHI

2. TOTAL PRODUCTAVERAGE PRODUCTMARGINAL PRODUCT
Total product
Whatever the firm produces with the help of given resources (factors of production) in a particular time is called Total Product or
Total output of the firm.
Marginal product
The change in total product of the firm by using one additional unit of variable factor of production (i.e. Labour) is called
marginal product of the firm.
𝑀𝑃 =
∆𝑇𝑃
∆𝐿
e.g. 10 workers are producing 100 m cloth and if 1 more labour is added ( now total labour becomes 101), the output increases
to 105 m. So, the increase in output because of the additional unit of labour is 5 m, which is the marginal product of 101th unit
of labour.
Average product
Average product is defined as the output per unit of variable input. When Total product divided by Total number of labour
(variable factor of production).
𝐴𝑃 =
𝑇𝑃
𝐿
In the above example, when 10 labours were working AP= 100/10 = 10m cloth.

3. TOTAL PRODUCTAVERAGE PRODUCTMARGINAL PRODUCT
Units of
Labour
Total
Product
Average
Product
Marginal
Product
1 4 4 4
2 12 6 8
3 24 8 12
4 32 8 8
5 36 7.2 4
6 36 6 0
7 35 5 -1
8 32 4 -3
0
5
10
15
20
25
30
35
40
1 2 3 4 5 6 7 8
TotalProduct
Units of Labour
TP

4. TOTAL PRODUCTAVERAGE PRODUCTMARGINAL PRODUCT
Units of
Labour
Total
Product
Average
Product
Marginal
Product
1 4 4 4
2 12 6 8
3 24 8 12
4 32 8 8
5 36 7.2 4
6 36 6 0
7 35 5 -1
8 32 4 -3
-4
-2
0
2
4
6
8
10
12
14
1 2 3 4 5 6 7 8APandMP
AP
MP

5. INTERRELATIONSHIP BETWEEN TP, MP & AP
1. As long as marginal productive (MP) remain positive, the total product (TP) goes on increasing.
2. When marginal product (MP) becomes zero, then total product (TP) becomes maximum.
3. When marginal product (MP) becomes negative, then total product (TP) starts to decline.
4. When average product (AP) marginal product (MP) also increases. But increase in marginal
product(MP) is greater than average product (AP).
5. When average product (AP) is maximum, then marginal product (MP) becomes equal to
average product (AP).
6. When average product (AP) falls, then marginal product (MP) also falls but more rapidly than
average product (AP)