Cambridge International as and a level Economics Ebook

marginal product
, the increase in total product that 
occurs from an additional unit of input (labour in this 
case). Th
e data in this column show that, when the number 
of workers goes from one to two, output increases by 
80 units; when it goes from two to three workers, the 
marginal product is 60 units. As the number of workers 
increases, the marginal product declines. Th
is concept is 
known as a diminishing return and is oft en referred to as 
the law of 
diminishing
returns
. Th
is well-known principle 
is clearly evidenced in many organisations. Adding more 
workers can be a short-term way of increasing what 
is being produced but there comes a point where the 
marginal return falls and might even become negative.
Production function: 
this shows the maximum possible 
output from a given set of factor inputs.
Marginal product: 
the change in output arising from the 
use of one more unit of a factor of production.
Diminishing returns: 
where the output from an additional 
unit of input leads to a fall in the marginal product.
KEY TERMS
Th
e fi nal column of 
Table 7.3 
shows another important 
variable, average product. Th
is is calculated by dividing 
the total product by the number of workers employed. It 
is a simple measure of labour productivity, i.e., how much 
output is produced by each worker.
The margin and change: 
The law of diminishing returns 
is a very relevant illustration of firms making choices at 
the margin.
KEY CONCEPT LINK
SELF-ASSESSMENT TASK 
7.3
a
Using data from 
Table 7.3,
draw a graph with lines 
to show:
■
the marginal product of labour
■
the average product of labour.