The Production Function

Production Function

Q = f(inputs); it shows the relationship between quantity of inputs used and quantity of output produced.

Total Product (TP)

The total quantity of output produced by a firm using a given quantity of inputs.

Marginal Product (MP)

The additional output produced by using one more unit of a specific input, holding other inputs constant.

Average Product (AP)

The output produced per unit of input, calculated by TP/Q input.

Marginal Product of Labor (MPL)

Calculated as ∆Q/∆L; it represents the change in output from employing one more unit of labor.

Diminishing Marginal Returns

The principle stating that adding more workers (or inputs) to a fixed resource will eventually produce less and less extra output.

Maximum Total Product (TP)

Occurs when the Marginal Product (MP) becomes negative.