Economics · Ch 3 — Production Analysis
Law of Variable Proportions: Total, Average and Marginal Product
3
Law of Variable Proportions: Total, Average and Marginal Product
The Law of Variable Proportions describes what happens to output in the SHORT RUN when successive units of a variable factor (say, labour) are added to a fixed factor (say, capital), one unit at a time, while the fixed factor itself stays unchanged. It is built on three related measures of output:
Note
Total, Average and Marginal Product
- Total Product (TP): the total output produced by all units of the variable factor employed.
- Average Product (AP): output per unit of the variable factor, , where is the number of units of the variable factor (labour).
- Marginal Product (MP): the addition to Total Product from employing ONE more unit of the variable factor, .
Consider a firm with a fixed amount of capital, adding one worker at a time:
| Labour () | Total Product (TP) | Marginal Product (MP) | Average Product (AP) |
|---|---|---|---|
| 0 | 0 | — | — |
| 1 | 10 | 10 | 10 |
| 2 | 22 | 12 | 11 |
| 3 | 36 | 14 | 12 |
| 4 | 48 | 12 | 12 |
| 5 | 55 | 7 | 11 |
| 6 | 60 | 5 | 10 |
| 7 | 60 | 0 | 8.57 |
| 8 | 56 | -4 | 7 |
Definition 1Law of Variable Proportions
As successive units of a variable factor are added to a fixed factor (technology and the fixed factor's quantity held constant), the marginal product of the variable factor first rises, then fall …