Average Product (AP) is the amount of output produced by each unit of a variable input, usually labour. It is a common way to measure labour productivity.
Formula:
AP = Total Product (TP) / Quantity of Labour (L)
Key Characteristics:
- AP often rises at first because workers can benefit from specialisation and team collaboration.
- AP eventually starts to fall because of diminishing returns, where adding too many workers makes the production process less efficient.
Relationship with Marginal Product (MP):
- When MP > AP: The average product is rising.
- When MP < AP: The average product is falling.
- The MP curve always crosses the AP curve at its highest point.
Example:
If 10 workers produce 100 units of a product, the average product is 100 / 10 = 10 units per worker.
Importance:
- It helps businesses track productive efficiency.
- A higher AP typically leads to lower average variable costs, making a firm more competitive and profitable.
- It is a key factor used when reviewing wages and overall productivity.