Marginal product (MP) is the extra output created by adding one more unit of a variable resource, such as labour, while keeping other resources (like equipment or land) unchanged.

Formula: MP = ΔTotal Product / ΔLabour Units

Key Features:

• Short-run concept: It follows the law of variable proportions.
• Initially, MP rises due to the benefits of specialisation.
• Gradually, MP falls as the fixed resources become overworked, leading to diminishing returns.
• MP can become negative if adding more labour leads to overcrowding and lower total output.
• MP is equal to zero when total production reaches its highest point.

Relationship with Costs:

• Marginal product determines marginal cost (MC). When MP increases, MC decreases; when MP decreases, MC increases.
• They function as mirror images of one another.