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Firms can increase the output in the short-run by increasing the number of labor employed.
This relationship can be best described by using three concepts:
1. Total Product
2. Marginal Product
3. Average Product
Total Product
The Total Product is the maximum output that a given quantity of labor can produce. The TP
changes in accordance to the changes in the quantity of
employees in the firm.
Marginal Product
The bars on the MP Curve show the marginal product. The
height of the bars measure the marginal product in relation
to the quantity of labor at the plant. The MP is also
measured by the slope of the TP Curve. The slope of the
curve is the change in the value of the variable measured on
the y-axis divided by the change in the variable on the x-axis
as we move along the curve.
This is due to the fact that more labor is working on the same plant therefore, there
becomes less work for the additional labor.
For the number of workers at which marginal product is less than average product, average
product is decreasing.
The relationship between the average product and marginal product is a general feature of
the relationship between the average and marginal values of any variable