Marginal product reaches a maximum at a lower level of output than average product does.


Question: Marginal product reaches a maximum at a lower level of output than average product does.

Marginal product reaches a maximum at a lower level of output than average product does. This is because marginal product is the change in total product resulting from a one-unit increase in the variable input, while average product is the total product divided by the number of units of variable input.

The marginal product curve typically has a U-shape, with the maximum point occurring at a lower level of output than the average product curve. This is because of the law of diminishing returns, which states that as more and more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.

For example, imagine a farmer who is trying to grow wheat on a fixed plot of land. As the farmer adds more and more labor to the plot of land, the total product of wheat will initially increase. However, at a certain point, the farmer will have enough labor to fully exploit the productive potential of the land. Any additional labor will not be able to produce as much additional wheat, and the marginal product of labor will begin to decline.

The average product of labor, on the other hand, is the total product of labor divided by the number of units of labor. At low levels of output, the average product of labor will be increasing, as the additional labor is able to produce a significant amount of additional wheat. However, as the marginal product of labor begins to decline, the average product of labor will also begin to decline.

The following graph shows the relationship between marginal product and average product:

The marginal product curve intersects the average product curve at the maximum point of the average product curve. This means that the marginal product of labor equals the average product of labor at the point where the average product is at its maximum.

The fact that marginal product reaches a maximum at a lower level of output than average product does has a number of important implications for firms. For example, it suggests that firms should hire workers up to the point where the marginal product of labor equals the wage rate. This is because hiring additional workers beyond this point would result in the firm paying more for the additional output than it is worth.

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