by Total Production (TP)
Total Production (TP) refers to the total quantity of output produced by a firm with the help of a given quantity of inputs during a particular period. In production analysis, especially in the short run, some factors of production are fixed while at least one factor is variable. Total production shows the overall output obtained by combining the fixed factors with different quantities of the variable factor. For example, land and machinery may remain fixed while the number of workers is increased. The total quantity produced by all the workers together represents total production.
Total production is an important concept for understanding the relationship between input and output. It helps a producer determine how much output can be obtained by employing different quantities of a variable factor. It also provides the basis for calculating marginal production and average production.
Example of Total Production
Suppose a farmer has a fixed area of land and increases the number of workers employed on that land. One worker may produce 15 bags of wheat, two workers may produce 35 bags, three workers may produce 60 bags, and four workers may produce 80 bags. The output corresponding to each number of workers represents total production.
Initially, additional workers may significantly increase output because the available land is being utilized more effectively. However, after a certain point, additional workers may contribute smaller increases because the land remains fixed.
Formula
The basic representation of total production is:
TP = Total Output
If labour is the variable factor:
TP = Quantity of output produced by all workers
For example, if one worker produces 10 units, two workers produce 25 units, and three workers produce 42 units, the total production with three workers is 42 units.
Total Production Schedule
A total production schedule shows the relationship between the quantity of variable input and the resulting total output. Consider the following example:
| Labour | Total Production |
|---|---|
| 0 | 0 |
| 1 | 10 |
| 2 | 25 |
| 3 | 42 |
| 4 | 56 |
| 5 | 65 |
| 6 | 70 |
| 7 | 70 |
| 8 | 66 |
The table shows that total production initially increases rapidly. It continues to increase but at a declining rate after a certain stage. At seven workers, total production reaches its maximum level of 70 units. When the eighth worker is employed, total production falls to 66 units.
Stages of Total Production
Stage 1. Increasing Returns
In the first stage, Total Production (TP) increases at an increasing rate as more units of the variable factor are employed. Marginal Production (MP) rises and Average Production (AP) also increases. This occurs because fixed factors are initially underutilized, allowing additional workers to improve their use. Specialization, division of labour, and better coordination also increase productivity. For example, adding workers to a small farm may significantly increase agricultural output during the initial production stage.
Stage 2. Diminishing Returns
In the second stage, Total Production continues to increase, but at a decreasing rate. Marginal Production starts declining but remains positive, while Average Production eventually begins to fall. This happens because the variable factor becomes relatively large compared with fixed factors. Consequently, additional workers contribute smaller additions to output. This stage is generally considered the rational stage of production, because resources are used more effectively and total output continues to increase.
Stage 3. Negative Returns
In the third stage, Total Production begins to decline as additional units of the variable factor are employed. Marginal Production becomes negative, meaning that an additional unit of input actually reduces total output. Excessive use of the variable factor creates congestion, overcrowding, and inefficient utilization of fixed resources. For example, employing too many workers on a fixed-size farm may interfere with one another and reduce agricultural output. Therefore, this stage represents inefficient production.
Importance of Total Production
1. Production Planning
Total Production (TP) helps businesses in production planning by showing the total output obtained from different quantities of inputs. Managers can compare production levels and determine the quantity of labour, materials, and other resources required to achieve desired output. Proper production planning helps avoid underproduction and overproduction. For example, a manufacturer can study previous TP levels to decide how many workers are needed to produce the required quantity of goods efficiently.
2. Efficient Resource Utilization
Total production helps firms understand how effectively their resources and factors of production are being utilized. By comparing output at different input levels, producers can identify whether resources are being underutilized or excessively used. This supports better allocation of labour, capital, land, and raw materials. Efficient resource utilization reduces wastage and improves productivity. Thus, TP provides useful information for achieving higher output from available resources.
3. Input-Output Analysis
Total production provides a basis for analyzing the relationship between inputs and output. A producer can observe how changes in the quantity of a variable factor affect overall production. This analysis helps identify production patterns and supports decisions about increasing or decreasing inputs. For example, a firm can compare output obtained from different numbers of workers to determine the effect of additional labour on total production.
4. Understanding Returns to Factors
Total production helps explain the Law of Variable Proportions and the different stages of production. By observing changes in TP as variable inputs increase, producers can identify increasing returns, diminishing returns, and negative returns. This helps managers understand when additional inputs improve production and when excessive inputs create inefficiency. Therefore, TP is an important measure for studying the behavior of production under changing input conditions.
5. Cost Management
Total production is closely related to cost management because production levels influence the quantity of resources required by a firm. By studying TP, businesses can identify production levels where resources are used more efficiently. Higher output from existing resources can help reduce average production costs. For example, a factory may determine an appropriate production level that allows machinery and labour to be utilized effectively, thereby improving cost efficiency and supporting better financial planning.
6. Profit Maximization
Total production contributes to profit maximization by helping firms determine appropriate output levels. Producers can examine how different quantities of inputs affect total output and then compare production with costs and expected revenue. Increasing output is beneficial only when additional revenue exceeds additional costs. Therefore, TP provides an important foundation for analyzing production decisions that ultimately influence profitability. It supports rational decisions regarding the scale and level of production.
7. Capacity Utilization
Total production helps businesses measure and improve capacity utilization. By comparing actual production with the available production capacity, managers can identify whether factories, machinery, labour, and other resources are being fully utilized. Low production may indicate underutilization, while excessive use of inputs may create inefficiency. For example, a manufacturing firm can compare its actual TP with maximum possible output to identify unused capacity and improve operational efficiency.
8. Business Decision-Making
Total production provides valuable information for managerial decision-making. Decisions regarding employment, expansion, resource allocation, production targets, and operational efficiency require an understanding of how inputs influence total output. TP helps managers evaluate different production alternatives and select suitable input combinations. It also supports forecasting and long-term planning. Thus, total production serves as an important analytical tool for improving business performance and achieving organizational objectives.
Limitations of Total Production
1. Does Not Measure Productivity Per Input
Total production shows the overall quantity of output, but it does not indicate how efficiently individual units of input are being used. A high TP may result from employing a very large quantity of labour or capital. Therefore, TP alone cannot determine the productivity of each worker or unit of input. Measures such as Average Production and Marginal Production are required to understand input productivity more accurately.
2. Does Not Show Marginal Contribution
Total production does not directly indicate the additional contribution of each extra unit of input. A firm may know that total output has increased but may not know how much of the increase resulted from an additional worker or resource. Marginal Production provides this information. Therefore, relying only on TP may lead to incomplete production decisions, particularly when managers need to determine whether employing additional resources is economically beneficial.
3. Does Not Measure Profitability
A high level of total production does not necessarily mean that a firm is earning high profits. Production involves costs such as wages, raw materials, rent, electricity, transportation, and machinery expenses. If production costs increase faster than output revenue, profitability may decline even when TP increases. Therefore, TP must be analyzed together with cost, revenue, price, and profit information to make sound economic and business decisions.
4. Difficulty in Comparing Different Inputs
Total production can be difficult to use for comparing the productivity of different types of inputs. Labour, capital, land, and technology have different characteristics and cannot always be measured in the same units. For example, comparing the contribution of ten workers with the contribution of a machine may not provide meaningful information through TP alone. Additional productivity and cost measures are needed for proper comparison.
5. Assumption of Constant Factors
Production analysis often considers total production by assuming that certain factors remain fixed while one variable factor changes. In real business situations, however, several inputs may change simultaneously. Technology, machinery, labour quality, management practices, and raw materials can all change. This makes it difficult to isolate the exact effect of one variable factor on total production. Consequently, practical production conditions may differ from theoretical assumptions.
6. Ignores Quality of Output
Total production generally measures the quantity of output and may not adequately reflect its quality. A business could increase the number of units produced while experiencing a decline in product quality. Poor-quality products may lead to customer dissatisfaction, returns, wastage, and reputational problems. Therefore, measuring TP alone can provide an incomplete picture of production performance. Both quantity and quality should be considered when evaluating production efficiency.
7. Influenced by External Factors
Total production can be affected by various external economic and environmental factors that are not directly reflected in the production measure. Changes in market demand, government regulations, supply disruptions, weather conditions, technology, and availability of raw materials can influence output. For example, agricultural production may decline because of unfavorable weather even when the quantity of labour remains unchanged. Thus, changes in TP cannot always be attributed solely to input decisions.
8. Limited Decision-Making Information
Total production alone provides limited information for managerial decision-making. It shows how much has been produced but does not explain whether the production level is optimal, economical, or profitable. Managers also need information about marginal cost, average cost, marginal revenue, demand, prices, productivity, and capacity utilization. Therefore, TP should be used as part of a broader production analysis rather than as the sole basis for business decisions.
Marginal Production (MP)
Marginal Production (MP), also known as Marginal Product, refers to the additional quantity of output produced by employing one additional unit of a variable factor, while other factors remain constant. It measures the change in total production resulting from a change in the quantity of the variable input.
Marginal production is particularly important in short-run production analysis, where some factors such as land, machinery, or factory space are assumed to remain fixed while another factor, usually labour, changes. It helps producers understand how much additional output can be obtained from employing an additional worker or unit of input.
Example
Suppose a garment factory has fixed machinery and increases its workforce. Four workers produce 200 shirts per day, while five workers produce 235 shirts. The marginal production of the fifth worker is:
MP = 235 − 200 = 35 shirts
If six workers produce 260 shirts, the sixth worker’s marginal production is:
MP = 260 − 235 = 25 shirts
The decline from 35 to 25 shows diminishing marginal productivity.
Formula
The formula for marginal production is:
MP = Change in Total Production / Change in Variable Input
Or:
MP = ΔTP / ΔL
when labour is the variable factor.
If total production increases from 100 units to 118 units when one additional worker is employed:
MP = (118 − 100) / (6 − 5) = 18 units
Thus, the sixth worker contributes an additional 18 units of output.
Marginal Production Schedule
Consider the following production schedule:
| Labour | Total Production | Marginal Production |
|---|---|---|
| 0 | 0 | — |
| 1 | 10 | 10 |
| 2 | 25 | 15 |
| 3 | 42 | 17 |
| 4 | 56 | 14 |
| 5 | 65 | 9 |
| 6 | 70 | 5 |
| 7 | 70 | 0 |
| 8 | 66 | -4 |
The table shows that MP initially increases from 10 to 17 units. It then begins to decline. At seven workers, MP becomes zero. With the eighth worker, MP becomes negative.=
Stages of Marginal Production
Stage 1. Increasing Marginal Production
In the first stage, Marginal Production (MP) increases as additional units of the variable factor are employed. This occurs because fixed factors are initially underutilized, and additional variable inputs improve their utilization. Specialization, division of labour, better coordination, and efficient use of machinery can increase the contribution of each additional unit. For example, when workers are added to a factory with unused machines, each new worker may contribute more output than the previous worker. MP therefore rises during this stage.
Stage 2. Maximum Marginal Production
Marginal production reaches its maximum level after increasing for some time. At this point, the additional unit of the variable factor makes the highest contribution to total output. Beyond this point, the fixed factors become relatively scarce compared with the variable factor. Therefore, although total production may continue to increase, MP begins to decline. This stage represents the turning point between increasing and diminishing marginal productivity and is important for analyzing efficient input utilization.
Stage 3. Diminishing Marginal Production
In the next stage, Marginal Production declines but remains positive. Each additional unit of the variable factor adds less to total production than the preceding unit. This happens because fixed factors become increasingly insufficient relative to the growing variable factor. For example, if factory space remains fixed while more workers are continuously employed, workers may have to share machines and workspace. As a result, additional workers contribute progressively smaller amounts of output. This reflects the Law of Diminishing Marginal Returns.
Stage 4. Zero Marginal Production
Marginal production becomes zero when an additional unit of the variable factor does not increase total production. At this point, total production reaches its maximum level. For example, if seven workers produce 70 units and eight workers also produce 70 units, the marginal production of the eighth worker is zero. This point is significant because employing additional inputs beyond this level may no longer increase output and may lead to inefficient resource utilization.
Stage 5. Negative Marginal Production
In the final stage, marginal production becomes negative, meaning that the employment of an additional unit of the variable factor causes total production to decline. This occurs when the variable factor is used excessively relative to fixed factors. Overcrowding, interference among workers, and inefficient use of machinery may reduce output. For example, if seven workers produce 70 units but eight workers produce only 66 units, the marginal production of the eighth worker is −4 units. This represents an inefficient stage of production.
Importance of Marginal Production
1. Helps in Input Decisions
Marginal production helps firms determine whether employing an additional unit of variable input is useful. By measuring the extra output generated by an additional worker or resource, managers can evaluate the benefit of increasing input usage. For example, a factory can compare the additional output created by hiring another worker with the additional wage cost. This supports rational employment and production decisions and helps businesses avoid unnecessary use of resources.
2. Supports Resource Allocation
Marginal production is useful for efficient allocation of scarce resources. Businesses have limited labour, capital, raw materials, and other productive resources. By examining the additional output generated from different inputs, producers can direct resources toward activities where their marginal contribution is higher. This can improve overall productivity. For example, a firm may allocate additional workers to a production department where their marginal contribution to output is relatively greater.
3. Helps Understand Diminishing Returns
Marginal production provides the basis for understanding the Law of Diminishing Marginal Returns. Initially, MP may increase because fixed resources are better utilized. After a certain point, MP begins to decline as more variable inputs are combined with fixed factors. This information helps producers recognize when additional input is becoming less productive. Understanding diminishing returns is essential for determining appropriate production levels and avoiding excessive employment of variable resources.
4. Assists Production Planning
Marginal production plays an important role in production planning. Managers can study the additional output associated with different quantities of variable inputs and establish suitable production targets. This helps firms determine the amount of labour or other resources required to achieve a desired level of output. For example, a manufacturing company can use MP information to estimate whether adding workers will provide enough additional production to meet an expected increase in market demand.
5. Helps in Cost Control
Marginal production supports cost control by helping firms evaluate the productivity of additional inputs. If an additional worker contributes only a small amount of output while generating a significant additional cost, employing that worker may reduce efficiency. Therefore, managers can compare marginal production with the cost of additional inputs. This analysis helps businesses control unnecessary expenses, improve productivity, and maintain efficient production operations.
6. Supports Profit Maximization
Marginal production is important for profit maximization because additional inputs should be employed only when their economic contribution justifies their cost. Firms can compare the additional output generated by an input with the revenue obtained from that output and the cost of employing the input. This helps determine economically appropriate input levels. Thus, marginal production provides an important foundation for analyzing the relationship between input costs, output, revenue, and profit.
7. Helps Determine Efficient Production
Marginal production helps identify whether a firm is operating with efficient input utilization. Increasing MP indicates that additional inputs are becoming more productive, while declining MP indicates diminishing productivity. Negative MP indicates excessive use of the variable factor. By monitoring these changes, managers can adjust input levels and avoid inefficient production conditions. This contributes to better utilization of fixed resources and improves the overall efficiency of business operations.
8. Useful for Managerial Decision-Making
Marginal production provides valuable information for managerial decision-making concerning employment, expansion, production levels, and resource utilization. Managers can use MP alongside average production, total production, costs, prices, and revenue to evaluate alternative production choices. For example, before expanding a production unit, a business can examine whether additional labour and capital are likely to generate sufficient additional output. Therefore, MP is an important tool for rational and economically informed business decisions.
Average Production (AP)
Average Production (AP), also called Average Product, refers to the amount of output produced per unit of the variable factor employed in production. It measures the average productivity or efficiency of the variable input. When labour is considered the variable factor, average production shows the average output produced by each worker.
Average production is especially useful in short-run production analysis, where one factor varies while other factors remain fixed. By calculating AP, a firm can determine whether the average productivity of its variable input is increasing or decreasing.
For example, if 5 workers produce 100 units of output, average production is 20 units per worker.
Formula
The basic formula is:
AP = Total Production / Quantity of Variable Input
When labour is the variable factor:
AP = TP / L
For example, if total production is 120 units and 6 workers are employed:
AP = 120 / 6 = 20 units per worker
Therefore, each worker produces an average of 20 units.
Average Production Schedule
Consider the following example:
| Labour | Total Production | Average Production |
|---|---|---|
| 1 | 10 | 10.00 |
| 2 | 25 | 12.50 |
| 3 | 42 | 14.00 |
| 4 | 56 | 14.00 |
| 5 | 65 | 13.00 |
| 6 | 70 | 11.67 |
| 7 | 70 | 10.00 |
| 8 | 66 | 8.25 |
The table shows that average production initially increases. It reaches its maximum around the third or fourth unit of labour and then starts declining.
Increasing Average Production
Average production increases when the total production increases proportionately faster than the quantity of variable input. In the initial stage, fixed factors may be underutilized. The addition of more workers can improve specialization, coordination, and utilization of machinery.
For example, if one worker produces 10 units, two workers produce 25 units, and three workers produce 42 units, AP increases from 10 units to 12.5 units and then to 14 units per worker.
Stages of Average Production (AP)
Average Production (AP) refers to the output produced per unit of variable input. It is calculated as:
AP = Total Production (TP) / Units of Variable Input
The stages of AP explain how productivity per unit of variable factor changes as more units of the factor are employed.
Stage 1. Increasing Average Production
In the initial stage, Average Production increases as more units of the variable factor are employed. This happens because the fixed factors are initially underutilized, and additional units of labour or other variable inputs improve their utilization. Better specialization, cooperation, and division of work also contribute to higher productivity. AP continues to rise until it reaches its maximum point. This stage indicates increasing efficiency in the use of the variable factor.
Stage 2. Maximum Average Production
Average Production reaches its maximum level when the productivity of the variable factor is at its highest. At this point, the available fixed factors are being utilized efficiently. An important relationship exists between Average Production and Marginal Production (MP): AP is maximum when MP equals AP. Beyond this point, adding more units of the variable factor causes AP to decline. Therefore, the maximum AP represents an important productivity point in production analysis.
Stage 3. Diminishing Average Production
After reaching its maximum level, Average Production begins to decline when additional units of the variable factor are employed. The main reason is that the fixed factors become relatively insufficient compared with the increasing variable factor. This creates congestion and overuse of fixed resources. Although total production may continue to increase during this stage, output per unit of variable input decreases. The decline in AP reflects the operation of the law of diminishing returns.
Importance of Average Production (AP)
1. Measures Average Productivity
Average Production measures the output produced per unit of variable input. It helps a producer understand how efficiently labour or other variable factors are being utilized. A higher AP generally indicates better utilization of the variable factor, while a declining AP signals reduced productivity.
2. Helps in Resource Utilization
AP helps firms evaluate the efficient use of resources. By comparing output per unit of input, managers can identify whether available labour and other variable factors are being used effectively. This supports better allocation of scarce productive resources.
3. Supports Production Planning
Average Production provides useful information for production planning. Managers can study changes in AP while increasing variable inputs and determine appropriate input levels. This helps them plan production activities according to the productivity of available resources.
4. Helps Control Costs
Changes in AP influence production costs per unit. When AP increases, the output generated from each unit of input increases, which can contribute to lower average input cost. When AP declines, additional inputs may produce relatively less output, increasing the cost associated with production.
5. Assists Labour Decisions
AP is particularly useful for making labour utilization decisions. Businesses can compare the productivity of workers at different levels of employment. This helps managers determine whether employing additional workers is improving or reducing average labour productivity.
6. Explains Relationship with MP
The relationship between Average Production and Marginal Production helps identify important productivity points. When MP is above AP, AP rises; when MP equals AP, AP reaches its maximum; and when MP falls below AP, AP declines. This relationship is useful in production analysis.
7. Identifies Efficient Input Levels
AP helps identify the level at which a variable input is being used with maximum average efficiency. The maximum AP occurs when MP equals AP. Producers can use this information to understand the productivity pattern of variable inputs and avoid inefficient resource use.
8. Supports Managerial Decision-Making
Average Production provides managers with information for input selection, production planning, cost management, and resource allocation. By examining AP along with TP and MP, managers can make more informed decisions regarding the quantity of variable factors required for production.
2 thoughts on “Total Production, Marginal Production, Average Production”