The Marginal Product

Suppose that we are operating at some point, (xi, x2), and that we consider using a little bit more of factor 1 while keeping factor 2 fixed at the level x2. How much more output will we get per additional unit of factor 1? We have to look at the change in output per unit change of factor 1:

We call this the marginal product of factor 1. The marginal product of factor 2 is defined in a similar way, and we denote them by MPi(xi,x2) and M P2{xi, x2) > respectively.

Sometimes we will be a bit sloppy about the concept of marginal product and describe it as the extra output we get from having "one" more unit of factor 1. As long as "one" is small relative to the total amount of factor 1 that we are using, this will be satisfactory. But we should remember that a marginal product is a rate: the extra amount of output per unit of extra input.

The concept of marginal product is just like the concept of marginal utility that we described in our discussion of consumer theory, except for the ordinal nature of utility. Here, we are discussing physical output: the marginal product of a factor is a specific number, which can, in principle, be observed.

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Project Management Made Easy

Project Management Made Easy

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