![]() It is this feature of increasing production and falling productivity which is highlighted by the Law of Diminishing Returns. This would require a change of scale of production or an increase of the size of the firm and is possible only in the long run. If we now wish to increase output and maintain the same productivity of labour, it is obvious that an increase in the fixed factors must accompany the increase in the variable factors. Marginal product begins to fall before average product and we get the maximum average product of labour when 4 people are employed. When the number of people employed exceeds 3, the marginal product of labour begins to fall - an indication that the proportions between the fixed and variable factors are becoming less favourable. Up to this point the fixed factors are being under utilised. As the number of people increases from 1 to 3 the marginal product of labour is increasing. As the number of people increases from 1 to 6, total output continues to increase, but this is not true of average product (AP) and the marginal product (MP).Īs more people are employed, both the AP and the MP begin to rise, reach a maximum and start to fall. So, we can speak of changes in the productivity of labour or changes in the returns to labour. Since labour is the only variable factor, changes in output are related directly to changes in its employment. The addition of a third person adds 30 tons to total output while the employment of a fourth person increases total output by 28 tons. Marginal product, shown in column 4, describes the changes in total output brought about by varying employment by one person. ![]() ![]() Total product/Number of workers = Average product ![]() Average product (or output per worker) is shown in column 3 and is obtained by using the formula. They show the total products at different levels of employment. ![]()
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