key term - Total Product

Definition

Total product refers to the total quantity of output produced by a firm or an economy using a given set of inputs over a specific period of time. It is a fundamental concept in the study of production and the short-run production function, which examines how output changes as variable inputs are increased while at least one input is held constant.

5 Must Know Facts For Your Next Test

1. The total product curve is typically upward-sloping, indicating that as more variable inputs are used, output increases, but at a diminishing rate due to the law of diminishing returns.
2. The shape of the total product curve can be divided into three stages: the increasing returns stage, the diminishing returns stage, and the negative returns stage.
3. The point at which the total product curve reaches its maximum value is known as the point of maximum output, and it represents the optimal level of variable input usage.
4. The slope of the total product curve at any point gives the marginal product of the variable input, which is the change in total output resulting from a one-unit increase in the variable input.
5. The total product curve is an important tool for understanding the firm's production decisions and cost structure in the short run.

Review Questions

• Explain the relationship between total product and the law of diminishing returns.
  • The law of diminishing returns states that as more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease. This means that the total product curve will initially increase at an increasing rate, then increase at a decreasing rate, and eventually decline. The shape of the total product curve reflects this pattern of diminishing returns, with the total product increasing, but at a diminishing rate, as more of the variable input is used.
• Describe the three stages of the total product curve and the implications for production decisions.
  • The total product curve can be divided into three stages: the increasing returns stage, the diminishing returns stage, and the negative returns stage. In the increasing returns stage, the total product increases at an increasing rate as the variable input is increased. In the diminishing returns stage, the total product increases, but at a decreasing rate. In the negative returns stage, the total product actually decreases as the variable input is increased further. The firm will typically operate in the diminishing returns stage, as this represents the most efficient use of the variable input to maximize output.
• Analyze how changes in the short-run production function affect the total product curve and the firm's production decisions.
  • The short-run production function describes the relationship between output and the quantities of variable inputs used, with at least one input held constant. Changes in the short-run production function, such as improvements in technology or changes in the availability of other inputs, will shift the total product curve. For example, if a new, more efficient technology is introduced, the total product curve will shift upward, allowing the firm to produce more output with the same level of variable inputs. This shift in the total product curve will affect the firm's production decisions, as the firm will be able to produce a greater quantity of output at a lower cost, potentially leading to changes in pricing, output, and input decisions.

Related terms

Marginal Product:

Marginal product is the additional output produced by employing one more unit of a variable input, holding all other inputs constant.

Average Product:

Average product is the total output divided by the quantity of the variable input used to produce that output.

Short-Run Production Function:

The short-run production function describes the relationship between the quantity of output and the quantities of variable inputs used, with at least one input held constant.