What is the relationship between average product and marginal product explain with diagram?

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Major Economic Terms related to Production and Supply

Business organizations require enough resources for producing a set of products. The resources are limited in nature and thereby affects the production cycle. The behavior of the production cycle will change accordingly with the availability of the resources. 

In this context, we will discuss some major economic-production terms like Total Product, Average Product and Marginal Product. Understanding and analysis of these terms are important in a business, especially one which is engaged in the production line. Let us begin our content with the economic and production knowledge delight.  

Production and Cost play a Vital Role in a Business

Macroeconomics depicts the large-scale operational procedure of a business or enterprise. Moreover, both production and cost are two indispensable parts of it. Production plays a vital role in the survival of a business amid a competitive market. On the other hand, cost determines the volume of production. At large, any business aims to achieve optimum production efficiency by reducing production costs.

However, for that, one needs to know some fundamental concepts like a definition of production, total product formula, and likewise.

What is Production? 

Production is a process of converting resources into products or services.

Production Function: it studies the fundamental difference between physical input and output.

Below is its formula.

Y= F (L.K)

Here, Y= Production, L= Labour and K= Capital.

What is the Total Product?

It refers to the total amount of output that a firm produces within a given period, utilising given inputs.

Total Product Formula is

TP= AP*L

Where AP= product/ labour unit; L= Labour

Average Product 

It is output per unit of inputs of variable factors.

Average Product (AP)= Total Product (TP)/ Labour (L).

Marginal Product 

It denotes the addition of variable factors to the total product.

Thus, Marginal product= Changed output/ changed input.

In other ways, marginal product leads to an increase of total product with the help of additional workers or input.

Relationship between Total Product and Marginal Product

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In order to derive the relation, first students need to remember the total product formula. Moreover, the law of variable proportions explains the relationship between these two. 

Marginal Product = ∑ Total Product

This law explains

TP increases at an increasing rate when MP increases. This pattern provides a Total Product Curve with a shape of convex. It then continues till MP reaches the maximum point of TP.

Where MP declines and stays positive, TP increases at a decreasing rate. This pattern provides a Total Product curve with a shape of concave after reaching a point of inflection. It continues till the TP curve reaches its maximum.

When MP is negative and declining, TP declines.

In case MP is zero, TP reaches its maximum.

Relationship between Marginal Product and Average Product

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Just like the relationship between marginal product and total product, the connection between this two is mentioned below. 

• The marginal product remains above an average product when AP rises. 

• Similarly, MP remains below AP, in case AP declines. 

• Average product and marginal product become equal at the maximum AP.

Discussion of Minor Economic Terms related to Production

• Short Run 

This refers to a period when a particular business can make alterations in variable factors to influence production. However, here the fixed factors remain the same.

• Long Run 

In the long run, an enterprise can make any changes in all factors to attain the desired production.

Now that you get an overall idea of what is a production and different usages of the total product formula let’s proceed towards the fundamental concept of Costs.

• Cost Function 

It explains the relationship between the quantity produced and cost.

Thus, 

C= F (Qx) 

Here, C= Production –Cost and Qx= Quantity of x goods produced.

Cost of Production Cost

It refers to the cost incurred to purchase various factor inputs like land and employ labourers. This also includes the expenses of non-factor inputs like fuel, raw material, etc.

• Total Cost 

It is a total of fixed and variable costs and can be expressed as -

‘I’C= TFC+TVC

Where TFC= Total Fixed Cost

TVC= Total Variable Cost

Implicit Cost 

It covers the cost of inputs that are self-owned used in production.

• Explicit Cost 

It accounts for standard business costs and also directly influences the profitability of a business, for instance, lease payments, wages, etc.

These are some of the most crucial factors of this chapter that students need to learn to perform well in the examination. Understanding these concepts may seem difficult at the beginning, but with proper guidance, it will become easier to comprehend.

Thus, if you want to know more about how to derive the total product formula or any other concepts of production and costs, visit Vedantu’s website or download the app. They have some useful and informative study materials that you can consult to clear your basics.

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