What is Marginal Product?
Marginal product is the extra output produced when a firm adds one more unit of input—typically labour. It's essential for understanding how firms decide how many workers to hire and where profits peak.
Marginal product (MP) is the additional output gained from one extra unit of input. For example, if hiring a 5th worker adds 12 more widgets per day, the MP of that worker is 12 units.
Step-by-step worked examples
A bakery's daily output with 1 worker is 40 loaves. With 2 workers, it's 75 loaves. What is the marginal product of the 2nd worker?
Total output with 1 worker = 40 loaves Total output with 2 workers = 75 loaves MP of 2nd worker = 75 − 40 = 35 loaves
A factory produces 100 units with 3 machines. With 4 machines, it produces 145 units. Calculate MP of the 4th machine.
Output with 3 machines = 100 units Output with 4 machines = 145 units MP = 145 − 100 = 45 units
A farm's harvest is 500 kg with 5 workers. With 6 workers, it's 540 kg. What is the MP of the 6th worker?
Total harvest (5 workers) = 500 kg Total harvest (6 workers) = 540 kg MP of 6th worker = 540 − 500 = 40 kg
Flashcards
Quick quiz
Q1.If output goes from 200 to 250 units when you hire one more worker, what is MP?
Q2.What is the law of diminishing marginal returns?
Q3.If 2 workers make 60 units and 3 workers make 85 units, what is the MP of the 3rd worker?
Q4.Negative MP means…
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Common mistakes
Confusing MP with total output. — Correct: MP is the change in output, not the total.
MP always increases. — Correct: MP typically increases at first, then diminishes (law of diminishing returns).
MP and AP are the same. — Correct: MP is the marginal (extra) output; AP is the average per unit of input.
When MP = 0, the firm should hire more. — Correct: When MP = 0, adding more input adds nothing—firm should stop hiring.
FAQ
What is marginal product?
The additional output gained from one more unit of input (e.g., one more worker producing 20 extra widgets).
What is the law of diminishing marginal returns?
As you add more input units, each new unit contributes less to total output—MP falls.
How is marginal product calculated?
MP = Change in total output ÷ Change in quantity of input = ΔQ ÷ ΔL (for labour).
When does MP become negative?
When too many workers (or inputs) crowd the workspace, further additions actually reduce output.