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Average physical product (APP), marginal physical product (MPP) In economics and in particular neoclassical economics, the marginal product or marginal physical productivity of an input (factor of production) is the change in output resulting from employing one more unit of a particular input (for instance, the change in output when a firm's labor is increased from five to six units), assuming ...
The marginal product of labor is directly related to costs of production. Costs are divided between fixed and variable costs.Fixed costs are costs that relate to the fixed input, capital, or rK, where r is the rental cost of capital and K is the quantity of capital.
Under certain assumptions, the production function can be used to derive a marginal product for each factor. The profit-maximizing firm in perfect competition (taking output and input prices as given) will choose to add input right up to the point where the marginal cost of additional input matches the marginal product in additional output.
To demonstrate diminishing returns, two conditions are satisfied; marginal product is positive, and marginal product is decreasing. Elasticity , a function of input and output, ϵ = I n O u t ⋅ δ O u t δ I n {\displaystyle \epsilon ={In \over Out}\cdot {\delta Out \over \delta In}} , can be taken for small input changes.
In the theory of marginality, the marginal product of an input is the extra output obtained by adding one unit to a specific input. [11] This assumes all the other factors contributing to the output remain constant. For example, the marginal product of labour would be the added production when increasing a unit of labour, such as hours worked.
Recall that the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility. [6] Additionally, an input's marginal product is the extra output that can be produced by using one more unit of the input, assuming that the quantities of no other ...
The law of diminishing marginal returns points out that as more units of a variable input are added to fixed amounts of land and capital, the change in total output would rise firstly and then fall. [15] The length of time required for all the factor of production to be flexible varies from industry to industry.
Wire-grid Cobb–Douglas production surface with isoquants A two-input Cobb–Douglas production function with isoquants. In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and ...