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Marginal Product: Definition & Example

Instructor: Brianna Whiting
In this lesson, we will define marginal product. We will look at the equation for marginal product and then apply it to a real example. We will close the lesson with a summary and quiz.

An Introduction to Marginal Product

Imagine you are the owner of a toy company. While you have always been able to fulfill the orders of your customers, you suddenly realize that you need to produce even more as the demand for your toys has increased. You are now forced to figure out how many more toys you can produce if you hire one more employee. In other words, you are trying to calculate marginal product.

You might be asking yourself, what does this mean? In order to fully understand marginal product, we need to look more closely at the definition. The definition of margin product is the additional output that results when one more units of input, such as labor, is added. The ultimate goal, is trying to figure out how the last unit of input effects the total output while all other inputs remain unchanged.

Calculating Marginal Product

Now that we know what marginal product is, we can now take a look at the equation to calculate marginal product. The following is the equation for calculating marginal product:

Marginal product= change in total product/ change in variable input

Example

Let's now take our formula and apply it to our example above. If you, as the store owner, need to increase the amount of toys produced in order to fulfill orders, you must figure out how changing the amount of labor will affect the amount of product. You ultimately decide to hire one more employee to help with the production of toys. This resulted in your company producing 20 more toys.

Marginal product= 20/1 Where the addition of 1 more employee produced 20 more toys. Therefore, the marginal product is 20.

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