The Marginal Product refers to the change in output from adding one additional unit of input, usually labour because it is the most variable input of them all. Meanwhile Average Product (AP) refers to output produced per unit. These are crucial indicators in the production process, highlighting to the producer if it ideal to increase inputs.
Mathematically denoted, the Marginal Product (MP) it is computed by saying the difference in Total Product divided (TP) by the difference in Quantity (TP – Q), whereas the Average Product is the Total Product divided by the Quantity (TP ÷ Q).
At the beginning bit of production, the Marginal Product (MP) is assumed to be equivalent to the Average Product (AP), for instance, the quantity is 1 and the total output is 10, the Marginal Product will be 10 minus 0 divide by 1 which is 10; and the Average Product (AP) will be 10 divided by 1, which is also 10.
As long as the Marginal Product (MP) is greater than Average Product (AP) the Total Product (AP) and the Average Product are increasing. However, when the Marginal Product (MP) is less than the Average Product (AP), although the Total Product (TP) is still increasing, the Average Product (AP) is decreasing. When the Marginal Product starts declining the Law of Diminishing Marginal Returns comes into play, also entailing the Total Product is still increasing but at a decreasing rate. Immediately after the Marginal Product is less than 0 or negative, the Total Product starts decreasing, as the Total Product is maximized where Marginal Product equals to 0 and any further increase in inputs leads to a decline in Total Product.
Takeaways:
MP > AP: TP and AP are increasing; Continue producing or adding inputs
MP = AP: AP is maximized; STOP!
MP > AP: TP is increasing BUT at a decreasing rate; AP is decreasing
MP = 0: TP is maximized
MP < 0: TP is decreasing
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