Average Product
What is Average Product?
Average Product is the total output produced per unit of a variable input, typically labor.
It is found by dividing total product by the quantity of the variable input used. Average product rises when marginal product is above it and falls when marginal product is below it.
Average Product: a worked example
A car wash hires workers and records total product: 1 worker washes 8 cars, 2 workers wash 20, 3 wash 33, 4 wash 44, and 5 wash 50. Average product is total product divided by workers, so it runs 8 ÷ 1 = 8, 20 ÷ 2 = 10, 33 ÷ 3 = 11, 44 ÷ 4 = 11, and 50 ÷ 5 = 10. Marginal product, the extra cars from each added worker, runs 8, 12, 13, 11, and 6. Average product climbs while marginal product sits above it, holds at 11 when the fourth worker's marginal product of 11 exactly equals it, and falls to 10 once the fifth worker adds only 6. The marginal curve cuts the average curve at the average's peak.
The mistake students make with average product
The classic slip is reading a falling marginal product as proof that average product is falling. Marginal product can drop from 13 to 11 while average product sits at its maximum, because a worker who adds 11 cars against an average of 11 leaves the average untouched. Average product only turns down once marginal product falls below it. A second slip is computing average product with the marginal formula, dividing the change in total product by the change in labor. At three workers that returns 33 minus 20 = 13, when average product is total product over total labor, 33 ÷ 3 = 11.
Average Product questions
What is the difference between average product and marginal product?
Average product measures output per worker across the whole workforce, while marginal product measures the extra output from hiring one more worker. With 5 workers producing 60 units, average product is 12; if a sixth worker raises output to 66, marginal product is 6 and average product falls to 11. Average product answers how productive the team is on the whole, marginal product answers whether the next hire pulls that number up or down.
Why does marginal product cross average product at its maximum?
Averages move toward whatever the newest value is. As long as the added worker produces more than the current average, the average gets pulled up; once that worker produces less, the average gets dragged down. The turning point sits exactly where marginal product equals average product, which is the top of the average product curve. Test scores work the same way, since a score above your average raises it and a score below lowers it.
How does average product relate to average variable cost?
Average product and average variable cost are mirror images when labor is the only variable input and the wage is fixed. AVC equals the wage divided by average product, so a $120 daily wage with an average product of 10 units gives AVC of $12, and an average product of 8 gives AVC of $15. Average product peaking is the same event as average variable cost bottoming out.
Formula / Example
This is the live Production Costs sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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