Marginal Product of Labor: Definition, Formula & Example

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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

It takes a variety of factors for a company to succeed. In this lesson, we'll learn about one of those: marginal product of labor. We'll define the term and learn the formula to calculate it.

Marginal Product of Labor Example

Let's imagine that you are the factory manager for a company that builds cars. You oversee all things production, which means making sure the machines are running smoothly, making sure you have enough supplies on hand to fulfill orders, and hiring and managing all employees that work in this department. For the last year, you've been able to produce cars fast enough, and efficiently enough, to meet demand and fill all orders. However, your company is introducing a new design next year, and it anticipate large orders. You know it's likely that you'll be producing more cars than ever before, and while your current staff can complete orders now, it's unlikely that they'll be able to keep up with the demand when the new model is released. You realize that you'll need to hire additional employees to create more output, but how many? You can figure this out by determining the marginal product of labor.

What Is Marginal Product of Labor?

Marginal product of labor is the change in output when additional labor is added, such as when an additional employee is hired. It is important to point out that all other factors remain constant. In other words, with marginal product of labor, only the amount of labor changes, not any other factor involved in production. With our factory manager example, if you want to determine marginal product of labor, you might hire one more worker to see if the additional labor adequately increases the number of cars you are able to produce, or, if it is will be necessary to hire more people to meet your quota.

Marginal Product of Labor Formula

Now that we know what marginal product of labor is, let's learn how to calculate it using the following formula:

marginal product of labor (MPL) = change in total product / change in labor

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