Marginal product

In <a href="/facts/Economics/HYctA2Dn">economics</a> and in particular <a href="/facts/Neoclassical_economics/Jw8FAyHm">neoclassical economics</a>, the marginal product or marginal physical productivity of an input (<a href="/facts/Factor_of_production/gDgCQ5ES">factor of production</a>) is the change in output resulting from employing one more unit of a particular input (for instance, the change in output when a firm's labor is increased from five to six units), assuming that the quantities of other inputs are kept constant.
The marginal product of a given input can be expressed 
as:

M
        P
        =
        
          
            
              Δ
              Y
            
            
              Δ
              X
            
          
        
      
    
    {\displaystyle MP={\frac {\Delta Y}{\Delta X}}}

where 
 
 
 
 Δ
 X
 
 
 {\displaystyle \Delta X}
 
 is the change in the firm's use of the input (conventionally a one-unit change) and 
 
 
 
 Δ
 Y
 
 
 {\displaystyle \Delta Y}
 
 is the change in the quantity of output produced (resulting from the change in the input). Note that the quantity 
 
 
 
 Y
 
 
 {\displaystyle Y}
 
 of the "product" is typically defined ignoring <a href="/facts/Externalities/hGgw7gtT">external costs and benefits</a>.
If the output and the input are infinitely divisible, so the marginal "units" are infinitesimal, the marginal product is the mathematical <a href="/facts/Derivative/7Ito70Dh">derivative</a> of the <a href="/facts/Production_function/oKnfDAou">production function</a> with respect to that input. Suppose a firm's output Y is given by the production function:

Y
        =
        F
        (
        K
        ,
        L
        )
      
    
    {\displaystyle Y=F(K,L)}

where K and L are inputs to production (say, capital and labor, respectively). Then the marginal product of capital (MPK) and marginal product of labor (MPL) are given by:

M
        P
        K
        =
        
          
            
              ∂
              F
            
            
              ∂
              K
            
          
        
      
    
    {\displaystyle MPK={\frac {\partial F}{\partial K}}}

M
        P
        L
        =
        
          
            
              ∂
              F
            
            
              ∂
              L
            
          
        
      
    
    {\displaystyle MPL={\frac {\partial F}{\partial L}}}

In the law of <a href="/facts/Diminishing_returns/YNwQIqtK">diminishing marginal returns</a>, the marginal product initially increases when more of an input (say labor) is employed, keeping the other input (say capital) constant. Here, labor is the variable input and capital is the fixed input (in a hypothetical two-inputs model). As more and more of variable input (labor) is employed, marginal product starts to fall. Finally, after a certain point, the marginal product becomes negative, implying that the additional unit of labor has decreased the output, rather than increasing it. The reason behind this is the diminishing <a href="/facts/Marginal_productivity_of_labor/3DWDxA2K">marginal productivity of labor</a>.
The marginal product of labor is the slope of the <a href="/facts/Total_product/G5mF3WkI">total product</a> curve, which is the production function plotted against labor usage for a fixed level of usage of the capital input.
In the neoclassical theory of <a href="/facts/Perfect_competition/les89UG3">competitive markets</a>, the <a href="/facts/Marginal_product_of_labor/3DWDxA2K">marginal product of labor</a> equals the <a href="/facts/Real_vs._nominal_in_economics/r0oa61cC">real</a> wage. In aggregate models of perfect competition, in which a single good is produced and that good is used both in consumption and as a capital good, the <a href="/facts/Marginal_product_of_capital/Ujyspp3t">marginal product of capital</a> equals its <a href="/facts/Rate_of_profit/yqsVlsQa">rate of return</a>. As was shown in the <a href="/facts/Cambridge_capital_controversy/spDGotKA">Cambridge capital controversy</a>, this proposition about the marginal product of capital cannot generally be sustained in multi-commodity models in which capital and consumption goods are distinguished.

Marginal product open-in-new

Marginal product