Relationships: TP-MP and AP-MP
Class 11 Microeconomics — How Total Product, Marginal Product, and Average Product are interconnected
TP-MP Relationship
| Fixed Factor (Land) | Variable Factor (Labour) | TP (units) | MP (units) |
|---|---|---|---|
| 1 | 0 | 0 | - |
| 1 | 1 | 10 | 10 |
| 1 | 2 | 30 | 20 |
| 1 | 3 | 45 | 15 |
| 1 | 4 | 52 | 7 |
| 1 | 5 | 52 | 0 |
| 1 | 6 | 48 | -4 |
Four Rules of TP-MP Relationship
As long as TP increases at an increasing rate (till point P), MP also increases.
When TP increases at a diminishing rate, MP decreases. It starts happening when 3 units of labour are employed and continues till 5 units of the variable factor.
When TP reaches its maximum point (point M), MP becomes zero (point N), i.e. at 5th unit of the variable factor.
When TP starts decreasing, MP becomes negative, i.e. from 6th unit of the variable factor.
AP-MP Relationship
| Fixed Factor (Land) | Variable Factor (Labour) | AP (units) | MP (units) |
|---|---|---|---|
| 1 | 0 | - | - |
| 1 | 1 | 10 | 10 |
| 1 | 2 | 15 | 20 |
| 1 | 3 | 15 | 15 |
| 1 | 4 | 13 | 7 |
| 1 | 5 | 10.40 | 0 |
| 1 | 6 | 8 | -4 |
Four Rules of AP-MP Relationship
As long as MP is more than AP, AP rises, i.e. up to 2nd unit of variable factor.
When MP is equal to AP, AP is at its maximum, i.e. at 3rd unit of variable factor.
When MP is less than AP, AP falls (from 4th unit of variable factor).
Thereafter, both AP and MP fall, but MP becomes negative, whereas AP remains positive. MP falls at a faster rate in comparison to fall in AP.
Key Takeaways
Key Takeaways
- When MP > AP, AP rises.
- When MP = AP, AP is at its maximum.
- When MP < AP, AP falls.
- MP can be negative but AP is always positive.
- MP pulls AP up or down — MP is the marginal change that drives the average.
- When TP is maximum, MP = 0.
- When TP increases at increasing rate, MP rises.
- When TP increases at decreasing rate, MP falls.
- A rational producer operates only in Phase II (Diminishing Returns).