(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 232

CHAPTER 6 • Production 207

unit of labor input. The average product is calculated by dividing the total output q by the total input of labor L. The average product of labor measures the
productivity of the firm’s workforce in terms of how much output each worker
produces on average. In our example, the average product increases initially but
falls when the labor input becomes greater than four.
The fifth column of Table 6.1 shows the marginal product of labor (MPL). This
is the additional output produced as the labor input is increased by 1 unit. For
example, with capital fixed at 10 units, when the labor input increases from 2 to
3, total output increases from 30 to 60, creating an additional output of 30 (i.e.,
60–30) units. The marginal product of labor can be written as ⌬q/⌬L—in other
words, the change in output ⌬q resulting from a 1-unit increase in labor input ⌬L.
Remember that the marginal product of labor depends on the amount of capital
used. If the capital input increased from 10 to 20, the marginal product of labor
most likely would increase. Why? Because additional workers are likely to be
more productive if they have more capital to use. Like the average product, the
marginal product first increases then falls—in this case, after the third unit of labor.
To summarize:
Average product of labor = Output/labor input = q/L
Marginal product of labor = Change in output/change in labor input
= ⌬q/⌬L

The Slopes of the Product Curve
Figure 6.1 plots the information contained in Table 6.1. (We have connected all
the points in the figure with solid lines.) Figure 6.1 (a) shows that as labor is
increased, output increases until it reaches the maximum output of 112; thereafter, it falls. The portion of the total output curve that is declining is drawn with
a dashed line to denote that producing with more than eight workers is not
economically rational; it can never be profitable to use additional amounts of a
costly input to produce less output.
Figure 6.1 (b) shows the average and marginal product curves. (The units on
the vertical axis have changed from output per month to output per worker per

month.) Note that the marginal product is positive as long as output is increasing, but becomes negative when output is decreasing.
It is no coincidence that the marginal product curve crosses the horizontal
axis of the graph at the point of maximum total product. This happens because
adding a worker in a manner that slows production and decreases total output
implies a negative marginal product for that worker.
The average product and marginal product curves are closely related. When
the marginal product is greater than the average product, the average product is increasing. This is the case for labor inputs up to 4 in Figure 6.1 (b). If the output of an
additional worker is greater than the average output of each existing worker (i.e.,
the marginal product is greater than the average product), then adding the worker
causes average output to rise. In Table 6.1, two workers produce 30 units of output,
for an average product of 15 units per worker. Adding a third worker increases
output by 30 units (to 60), which raises the average product from 15 to 20.
Similarly, when the marginal product is less than the average product, the average
product is decreasing. This is the case when the labor input is greater than 4 in
Figure 6.1 (b). In Table 6.1, six workers produce 108 units of output, for an average product of 18. Adding a seventh worker contributes a marginal product of
only 4 units (less than the average product), reducing the average product to 16.

• marginal product
Additional output produced as
an input is increased by one unit.