What is the relationship between average products and marginal product
Answers
Answer:
The marginal product and average product curves initially increase then decrease due to the law of diminishing marginal returns.
Marginal product is the change in total product divided by the change in quantity of resources (or inputs).
Average product is the total product divided by the quantity of economic resources (or inputs).
The average product reaches its peak when it intersects the marginal product curve.
Explanation:
Average Product(AP) in Microeconomics implies the average or mean of the Total Product(TP) or total output/production.Marginal Product(MP) represents the additional output obtained by the firm/company by employing 1 more unit of any factor/input of production.
Explanation:
AP can be calculated by dividing TP by the total units of input/factor employed in the production process.MP essentially implies the overall change in TP due to employment of 1 more unit of any factor/input in production process.Now,if the MP is greater than AP,AP will increase and MP is equal to AP,AP will remain the same(neither increase nor decrease.If MP is less than AP,it will pull down AP and AP will decrease.At the initial stage of production, MP will rise at an increasing rate and will surpass AP thereby causing an increase in AP.But gradually this rate would slowdown and would eventually become 0 due to law of diminishing marginal product(LDMP).At this point AP is maximum and is equal to MP.Beyond this point,again due to LDMP,as the firm continues its production,MP will begin to fall and will be less than AP causing the AP to fall.
Hence,any change in AP is contingent on variation in MP or MP is the stimulus which triggers changes in AP and any firm or company would want the MP to increase progressively which can generate higher potential revenue.