Question

Explain diagrammatically the relation between average product (ap) and marginal product (mp).

Answer 1

Common sense tells us that, if an additional worker is to raise the AP of all workers, the worker’s output must be greater than the average output of all existing workers. It is immaterial whether his contribution to output is greater or less than the contribution of the workers hired immediately before him.

Since AP slopes upwards or downwards, MP first increases, then decreases and eventually becomes negative. The law of diminishing returns is also called the Law of Variable Proportions because it predicts the consequences of varying the proportion in which factor inputs are used.

Marginal and Average Product Curves

Since AP slopes upwards or downwards, depending on whether MP is above or below AP, it follows that MP must equal AP at the highest point on the AP curve; when AP is falling, MP is below AP, pulling it down.