Concept of Product
Product or output refers to the volume of the goods that the company produces using inputs during a specified period of time. The concept of product can be looked at from three different angles: Total Product, Marginal Product, and Average Product.
1. Total Product: Total Product (TP) refers to the total quantity of goods that the firm produced during a given course of time with the given number of inputs. Total Product is also known as Total Physical Product (TPP) or Total Output or Total Return. For example, if 6 labours produce 10 kg of wheat, then the total product is 60 kg. A company can increase TP in the short term by focusing primarily on the variable components. But over time, both fixed and variable elements can be increased to raise TP.
2. Average Product: Average Product refers to output per unit of a variable input. AP is calculated by dividing TP by units of the variable factor. For example, if the total product is 60 kg of wheat produced by 6 labours (variable inputs), then the average product will be 60/6, i.e., 10 kg.
Average Product = [Tex]\frac{Total~Product}{Units~of~Variable~Factor}[/Tex]
3. Marginal Product: Marginal Product refers to the addition to the total product when one more unit of a variable factor is employed. It calculates the extra output per additional unit of input while keeping all other inputs constant. Other names of Marginal Product are Marginal Physical Product (MPP) or Marginal Return.
MPn = TPn – TPn-1
Here,
MPn = Marginal product of nth unit of the variable factor,
TPn = Total product of n units of the variable factor, and
TPn-1 = Total product of (n-1) units of the variable factor
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