CHAPTER • Production 207 unit of labor input The average product is calculated by dividing the total output q by the total input of labor L The average product of labor measures the productivity of the firm’s workforce in terms of how much output each worker produces on average In our example, the average product increases initially but falls when the labor input becomes greater than four The fifth column of Table 6.1 shows the marginal product of labor (MPL) This is the additional output produced as the labor input is increased by unit For example, with capital fixed at 10 units, when the labor input increases from to 3, total output increases from 30 to 60, creating an additional output of 30 (i.e., 60–30) units The marginal product of labor can be written as ⌬q/⌬L—in other words, the change in output ⌬q resulting from a 1-unit increase in labor input ⌬L Remember that the marginal product of labor depends on the amount of capital used If the capital input increased from 10 to 20, the marginal product of labor most likely would increase Why? Because additional workers are likely to be more productive if they have more capital to use Like the average product, the marginal product first increases then falls—in this case, after the third unit of labor To summarize: Average product of labor = Output/labor input = q/L Marginal product of labor = Change in output/change in labor input = ⌬q/⌬L The Slopes of the Product Curve Figure 6.1 plots the information contained in Table 6.1 (We have connected all the points in the figure with solid lines.) Figure 6.1 (a) shows that as labor is increased, output increases until it reaches the maximum output of 112; thereafter, it falls The portion of the total output curve that is declining is drawn with a dashed line to denote that producing with more than eight workers is not economically rational; it can never be profitable to use additional amounts of a costly input to produce less output Figure 6.1 (b) shows the average and marginal product curves (The units on the vertical axis have changed from output per month to output per worker per month.) Note that the marginal product is positive as long as output is increasing, but becomes negative when output is decreasing It is no coincidence that the marginal product curve crosses the horizontal axis of the graph at the point of maximum total product This happens because adding a worker in a manner that slows production and decreases total output implies a negative marginal product for that worker The average product and marginal product curves are closely related When the marginal product is greater than the average product, the average product is increasing This is the case for labor inputs up to in Figure 6.1 (b) If the output of an additional worker is greater than the average output of each existing worker (i.e., the marginal product is greater than the average product), then adding the worker causes average output to rise In Table 6.1, two workers produce 30 units of output, for an average product of 15 units per worker Adding a third worker increases output by 30 units (to 60), which raises the average product from 15 to 20 Similarly, when the marginal product is less than the average product, the average product is decreasing This is the case when the labor input is greater than in Figure 6.1 (b) In Table 6.1, six workers produce 108 units of output, for an average product of 18 Adding a seventh worker contributes a marginal product of only units (less than the average product), reducing the average product to 16 • marginal product Additional output produced as an input is increased by one unit