Average Product Analysis
AVERAGE PRODUCT What is average product? The term average product refers to the average output (or products) produced by each input (factors of production like labor and land). It's a way for companies to measure total output produced with a particular combination of variable inputs. In our example, it's the average number of tents produced by each worker. Mike can calculate average production if he measures the company's total output of tents per each working employee it requires to make them. How to calculate Average Product? Average product is the per unit production of a firm. Conceptually, it is simply the formula mean of total product calculated for each variable input over a whole range of variable input quantities. Average product …show more content…
This curve indicates the per unit output at each level of the variable input. The average product curve is one of three related curves used in the analysis of the short-run production of a firm. The other two are total product curve and marginal product curve. The average product typically varies as more of the input is employed, so this relationship can also be expressed as a chart or as a graph. A typical average physical product curve is shown (APP). It can be obtained by drawing a vector from the origin to various points on the total product curve and plotting the slopes of these vectors. Because the marginal product drives changes in the average product, we know that when the average physical product is falling, the marginal physical product must be less than the average. Likewise, when the average physical product is rising, it must be due to a marginal physical product greater than the average. For this reason, the marginal physical product curve must intersect the maximum point on the average physical product …show more content…
The denominator in this equation is always one because the formula is based on each one unit of increase in labor. Companies can just as easily find the marginal product by subtracting the previous quantity of items produced from the current quantity of items produced. To better explain how marginal productivity is calculated, take the following example. Over 30 days, Bob produces 90 pairs of jeans. When he works with a partner, Ron, the output of the pair increases to 190 pairs of jeans. Bob’s productivity is 90 and the marginal productivity of adding a second person is
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