The marginal product of labor (MPL) is the additional output a firm produces by hiring one more unit of labor while holding all other inputs, like capital, constant. It usually falls as more workers are added due to diminishing marginal returns.
The marginal product of labor (MPL) answers a simple question: if a firm adds one more worker and keeps everything else the same (same machines, same factory space), how much more output do they get? That extra output is the MPL. In formula terms, it's the change in total output divided by the change in labor input.
Early on, adding workers can boost output a lot because workers can specialize and use idle equipment. But as you keep piling more labor onto a fixed amount of capital, each new worker has less to work with, so the extra output they add gets smaller. That decline is the principle of diminishing marginal returns, and it's why the MPL curve eventually slopes downward.
This concept sits at the center of Topic 14.1, The Theory of Labor Markets. MPL is the starting point for understanding why firms demand labor at all. A firm doesn't hire workers for fun, it hires them because each worker produces output that can be sold for revenue. Multiply MPL by the price of the product (or marginal revenue) and you get the marginal revenue product of labor, which is what the firm actually compares to the wage. Get MPL right and the rest of labor demand falls into place: hiring rules, profit maximization, and how wage changes affect employment all build directly on it.
Keep studying Principles of Economics Unit 14
Visual cheatsheet
view galleryMarginal Revenue Product of Labor (Unit 14)
MRPL is MPL turned into dollars. You take the extra output a worker produces (MPL) and multiply it by the revenue each unit earns, which tells the firm how much that worker is worth to hire.
Diminishing Marginal Returns (Unit 14)
This is the reason the MPL curve falls. As more labor is added to fixed capital, each additional worker adds less and less to total output.
Profit Maximization (Unit 14)
Firms hire workers up to the point where the marginal revenue product of labor equals the wage. MPL is the first ingredient in that hiring rule, so it directly shapes how many people get jobs.
Expect to calculate MPL from a table of labor and total output, often as the first step before computing marginal revenue product. Problem sets and quizzes typically ask you to fill in the MPL column, identify where diminishing returns kick in, and then use MRPL versus the wage to decide how many workers a firm should hire. On short-answer or essay questions, you may need to explain why the MPL curve slopes downward and connect that shape to the firm's labor demand curve.
MPL is measured in physical output (units of stuff), while MRPL is measured in dollars. To get MRPL, you multiply MPL by the price or marginal revenue of the product. Firms compare MRPL, not MPL, to the wage when deciding to hire.
The marginal product of labor is the extra output you get from adding one more worker while holding all other inputs constant.
Because of diminishing marginal returns, MPL typically falls as more workers are added to a fixed amount of capital.
MPL is measured in units of output, while marginal revenue product of labor (MRPL) converts that output into dollars.
A firm keeps hiring until the marginal revenue product of labor equals the wage rate, which maximizes profit.
The downward-sloping portion of the MPL curve is what makes a firm's labor demand curve slope downward too.
It's the additional output a firm produces when it hires one more unit of labor, keeping all other inputs like capital fixed. You calculate it as the change in total output divided by the change in labor.
No. It may rise at first, but it eventually falls because of diminishing marginal returns once too many workers share the same fixed capital. That declining stretch is the most important part for labor demand.
MPL is measured in physical units of output, while MRPL is measured in dollars. You get MRPL by multiplying MPL by the product's price (or marginal revenue), and that dollar value is what firms compare to the wage.
Divide the change in total output by the change in labor input (MPL = ΔOutput ÷ ΔLabor). If hiring a 4th worker raises output from 30 to 36 units, the MPL of that worker is 6 units.
MPL is the first step in figuring out how much a worker is worth. Firms convert it to dollars (MRPL) and keep hiring until MRPL equals the wage, so a higher MPL means a firm is willing to hire more workers.