Production with One Variable Input (Labor)
Average product of labor = Output/labor input = q/L
Marginal product of labor = change in output/change in labor input = Δq / Δ L
When the marginal product is greater than the average product, the average product is increasing.
When the marginal product is less than the average product, the average product is decreasing.
**The average product of labor is given by the slope of the line drawn from the origin to the corresponding point on the total product curve.
The law of diminishing marginal returns – Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease.
Labor productivity – Average product of labor for an entire industry or for the economy as a whole. (it determines the real standard of living that country can provide)
Stock of capital – Total amount of capital available for use in production.
Technological change – Development of new technologies allowing factors of production to be used more effectively.
