Production Concepts and the Theory of Cost

Production Concepts

i. Total Product (TP) Total Product is the total quantity of commodities produced by a combination of factors of production at a point in time. TP is expressed as the product of Average Product and Labour units, that is: TP = AP × L

ii. Average Product (AP) AP is defined as the output per unit of the variable factor (Labour or Capital) employed. It can be obtained by dividing total product by the number of labour or capital (variable factor) employed. That is, AP \(= \frac{\text{Total Product(TP)}}{\text {Labour or Capital}}\)

iii. Marginal Product (MP) MP is the addition to total product as a result of employing an extra or additional unit of variable factor. It can be expressed as:

MP \(= \frac{\text{Change in Total Product(TP)}}{\text {Change in Variable Factor}}\)

Total, Average and Marginal Product can be presented in a table as below:

The relationship between Total Product, Average Product and Marginal Product can be represented in a graph as shown below:

EVALUATION

1.