6.6 : Total Product and Average Product

The total product is the total output a firm can achieve during a particular period for a combination of inputs.

In a clothing firm, capital, given by the sewing machines, is fixed in the short run, and labor, given by the number of workers, is the variable input.

When the first few workers are hired, total product increases at an increasing rate, indicating increasing marginal returns. However, as more workers are added, the total product continues to increase but at a decreasing rate, indicating diminishing marginal returns. Eventually, hiring too many workers relative to the fixed input causes total output to decrease, indicating negative marginal returns.

The total product curve rises steeply in the stage of increasing marginal returns, rises slowly in decreasing marginal returns, and falls in the stage of negative marginal returns.

The average product is calculated as the quotient of the total product to the units of labor employed. It indicates the worker's productivity by showing how much output each worker produces on average.

The average product curve rises initially as the fixed input is used more efficiently, reaches a maximum, and eventually declines due to diminishing returns to the variable input.