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What is Average Output?
The average output produced by each input is called the average product. Average product is a way used by companies to measure the total output produced using a particular combination of inputs. It is defined as the output per unit of factor inputs or the average of the total product per unit of input and can be calculated by dividing the Total Product by the inputs (variable factors). Average Product = Total Product/ Units of Variable Factor Input.
As the average productivity of input increases, so does the average product; similarly, the higher the average product, the more input becomes productive. The relation between input factors and total production is generally linear.
Average Product Formula
Average product measures your productivity with a particular number of workers. Divide the total product by the input of labour to find the average product. Altering the number of workers will change the output, or total product.
In order to calculate the average product, the total product is divided by the variable input quantity; hence, calculating the total product is essential. Total product is also known as average physical product (APP). Average product is the ratio of units produced compared with units required to produce the products.
The average product formula is-
Average product= total product/units of input factors
To simplify, take an example of a company producing 100 products with 10 workers/labourers; labour is a variable of input, then the average product is 10. The economists use the average product formula to describe the relationship between the factor of production that is input and the unit of production that is the output produced.
Average Fixed Cost
The fixed cost of production divided by the output produced is called average fixed cost.
The average fixed cost formula is–
Average fixed cost= fixed cost/ quantity.
The average fixed cost is the fixed cost per unit of output. As the total number of products increases, the average fixed cost decreases—average Variable cost + Average Fixed cost= Average Total cost. (AVC+AFC=ATC). The average variable cost is the company’s input variable cost divided by the output produced. The average total cost or unit cost is divided by the quantity of output produced.
What is a Marginal Product?
The marginal product of the marginal physical productivity of an input is the additional change in output resulting from employing one more variable unit of a particular input, assuming that the variables of inputs were constant.
In the law of diminishing marginal return, the marginal product initially increases when more of a single variable of input is employed, making the other input constant. And the marginal cost is the change in the total cost that increases when the output produced increases, the cost of producing additional quantity.
Marginal cost includes all costs that change with the production level, whereas the cost that does not change is called fixed. The change in total cost when the additional output is produced in the short run and some costs are fixed is called short-run marginal cost.
The long-run marginal cost is described with the length of time in which the input is fixed, including building size and machinery, which can be chosen according to the desired quantity.
The Relationship between Marginal Product and Average Product
Marginal product is the additional output produced by implying the additional unit of the input variable. Therefore, the marginal product is said to be the total product when extra variable input is used. The law of variable proportions describes the relationship between the average and marginal product. The law of variable proportion states that when only one input factor is allowed to increase, other variables remain constant.
When the average product rises, the Marginal Product lies above the Average product, and when the average product is declining, the marginal product lies below the average product. At the maximum average product, average and marginal products lie equally to each other.
Conclusion
The average output produced by each input is called the average product. In other words, the average product is the number of units produced from a single production unit. The fixed cost of production divided by the output produced is called average fixed cost.
Marginal product is the additional output produced by implying the additional unit of the input variable. Therefore, the marginal product is said to be the total product when extra variable input is used.
The law of variable proportion states that when only one input factor is allowed to increase, other variables remain constant. When the average product rises, the Marginal Product lies above the Average product, and when the average product is declining, the marginal product lies below the average product.
