#### CA Foundation Business Economics Study Material Chapter 3 Theory of Production and Cost – Concepts of Product

Product i.e. output refers to the volume of goods produced by a firm in a particular period of time.
There are three concepts relating to the physical production by factors namely-

1. Total Product (TP),
2. Average Product (AP), and
3. Marginal Product (MP).

1. Total Product (TP):

• The total output produced by all the factors per unit of time is called total product.
• Total product increases with an increase in the variable factor input.
• Column Nos. (1) and (2) of the following table shows a total product schedule.

2. Average Product (AP):

• The. average product means the total product per unit of a variable factor.
• In other words, it is the total product divided by the number of units of a variable factor.< • Column No. (3) of the following table shows the average product of variable factor.

3. Marginal Product (MP):

• The marginal product means addition made to total product by the use of an extra unit of variable factor.
• It may be stated as-
MPn = TPn – TPn-1
where,
MPn = Marginal product when ‘n ’ units of variable factors are used
TP = Total Product
n = number of units of variable factors used.
• Marginal Product may also be defined as the change in total output due to use of additional unit of variable factor Where –
Δ = a small change Column No. (4) of the following table shows the marginal product schedule.

Table: Product Schedule

 Units of Variable Total Product (TP) factor E.g. LABOUR Average Product (AP) Marginal Product (MP) 1 10 10 10 2 30 15 20 3 60 20 30 4 80 20 20 5 90 18 10 6 90 15 0 7 85 12.1 -5

Average product and Marginal product are related to one another.

(i) – When average product of the variable factor is rising, marginal product of the variable factor is more than its average product.
– So when average product curve is rising, the marginal product curve will lie somewhere above it.

(ii) – When average product of the variable factor is falling, marginal product of the variable factor is less than its average product.
– So when average product curve is falling, the marginal product curve will lie somewhere below it.

(iii) – When average product of the variable factor is maximum and constant, marginal product is equal to average product.
– In other words, the marginal product curve cuts the average product curve at its maximum point.