- The law of diminishing returns states that as the level of a variable input increase, marginal product will begin to fall
- As the level of that factor input continues to be increased, the average product will fall too. The Marginal Product curve always meets the Average Product curve when the Average Product curve is at its maximum
Average product is the output produced per unit of factor input
- The average product is also known as productivity
- e.g. if the variable factor is labour, the labour productivity is number of units per worker (per hour)
- So if a firm employs more and more people, it will find that productivity will eventually fall
- If a firm then adds more of a variable factor, it is possible to add further input with a fall in total produce
Total product is the total output produced using a particular combination of factor inputs
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