How to Calculate the Marginal Product of Labor
The marginal product of labor equals the change in total output divided by the change in workers: MPL = ΔQ ÷ ΔL.
The Labor's Marginal Product formula
Calculator
Enter total output at each workforce size to get the marginal product of labor and its marginal revenue product.
Capital and every other input stay fixed.
Used to check whether diminishing returns have set in.
Turns marginal product into marginal revenue product.
Going from 3 to 4 workers raises output by 18, so each added worker contributes 18.
- Marginal revenue product
- $36
- Marginal product of the next worker
- 12
- Average product at the larger crew
- 27
- Returns to labor
- Diminishing marginal returns
That worker's extra output is worth $36 at a price of $2 per unit.
The following hire adds 12 to total output.
Marginal product is below average product, so average product is being dragged down.
Marginal product drops from 18 to 12, so diminishing returns begin with that next worker.
How to calculate Labor's Marginal Product, step by step
- 1List total output at each labor quantity. Read the total product column from the table, holding capital and every other input fixed.
- 2Take the change in output. Subtract total output at the smaller workforce from total output at the larger one.
- 3Divide by the change in labor. MPL = ΔQ ÷ ΔL, the extra output produced by the worker or workers you added.
- 4Find where MPL starts to fall. MPL often rises at first as workers specialize, then falls once diminishing marginal returns set in, and it turns negative if extra workers get in each other's way.
Worked example: Labor's Marginal Product
A bakery with a fixed kitchen produces 90 loaves with 3 workers, 108 with 4, and 120 with 5. MPL of the 4th worker = (108 − 90) ÷ (4 − 3) = 18 loaves. MPL of the 5th = (120 − 108) ÷ (5 − 4) = 12 loaves, so diminishing marginal returns begin with the 5th worker. If each loaf sells for $2, the 4th worker's marginal revenue product = 18 × 2 = $36.
Labor's Marginal Product questions
What is the difference between marginal product and average product?
Marginal product is the extra output from one more worker, while average product is total output divided by the number of workers. Marginal product pulls average product up when it is above it and drags it down when it is below it.
Why does the marginal product of labor eventually fall?
Diminishing marginal returns: with capital fixed, each added worker has less equipment and space to work with, so each one adds less extra output than the worker before.
How is MPL related to marginal cost?
They move in opposite directions, since MC = wage ÷ MPL when labor is the only variable input. A falling MPL therefore means each extra unit of output costs more to make.
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