Average Product (AP)

Definition

Average product (AP) represents the output produced per unit of input. It is calculated by dividing the total product by the quantity of input used. AP helps determine how efficiently inputs are being utilized.

Analogy

Imagine a group project where each member contributes to completing a task. The average product would be the amount of work done per person. If everyone works equally, the average product will be high, but if some members slack off, it will decrease.

Related terms

Marginal Productivity Theory: The marginal productivity theory states that in a competitive market, workers' wages tend to equal their marginal contribution to production.

Diminishing Returns: Diminishing returns occur when adding more units of an input leads to smaller increases in output. At some point, additional inputs may result in decreasing average and marginal products.

Total Cost (TC): Total cost refers to all expenses incurred in producing a specific quantity of output. It includes both fixed costs and variable costs associated with production activities.