Concept of Total, Average And Marginal Productivity - SS2 Economics Lesson Note

Productivity refers to the amount of output produced per unit of input. There are three key concepts in productivity analysis: total productivity, average productivity, and marginal productivity

• Total productivity (TP) refers to the total amount of output that is produced by all inputs. It is calculated by dividing the total output by the total input. This measure takes into account all the inputs used to produce the output, including labor, capital, and raw materials. Mathematically,

TP = Q/I,     

Where Q = Total output or quantity, 

I = total inputs (capital, labour, and raw materials)

 

• Average productivity (AP) refers to the amount of output produced per unit of input. It is calculated by dividing total output by the number of units of input used.  For example, if a firm produces 100 units of output using 10 units of labor, then the AP of labor is 10 units of output per unit of labor. Mathematically,

AP = Q/I(k, l, t)

Where Q = Total output or quantity, 

 I(k, l, r) = units of a specific input,     k= capital.     l = labour.    r = raw materials

 

• Marginal productivity (MP) refers to the change in output that results from a change in the level of input. It is calculated by dividing the change in output by the change in input. For example, if a firm produces 100 units of output using 10 units of labor, and then produces 110 units of output using 11 units of labor, then the MP of labor is 10 units of output per unit of labor. Mathematically, using I(k), which is units of capital employed

MP = Q¹ - Q° / I(k)¹ - I(k)°

Where Q¹ - Q° = Change in output or quantity, 

 I(k)¹ - I(k)° = Change in units of capital employed