6.4 : Marginal Product I

The marginal product of an input refers to the additional output that can be produced by using an extra unit of that input while keeping other inputs constant. In the short run, labor is typically the variable input. So, the marginal product of labor refers to the additional output a firm can produce by employing an extra unit of labor.

Mathematically,
MPL = ΔQ / ΔL,
where:
ΔQ = Change in total output
ΔL = Change in labor input

Law of Diminishing Marginal Returns

The Law of Diminishing Marginal Returns states that as additional units of a variable input are added to fixed inputs, after a certain level of output is achieved, the marginal product of the variable input will diminish. So, in the short run, when labor is assumed to be the variable input, a firm can increase its output by employing more labor. Initially, as more workers are hired, each additional worker might significantly increase output. However, after a certain level of output is achieved, the marginal product of labor will decrease. This occurs because the fixed inputs (e.g., capital, equipment) can only support a certain number of workers efficiently. As more workers are added, they may begin to get in each other's way or have to share equipment, reducing their individual contribution to output.