The marginal product of an input in production refers to the additional output that is generated by using one more unit of that input while keeping other inputs constant. In simple terms, it’s the extra output that results from adding one more worker, machine, or any other resource.
For example, if a factory operates with 5 workers and produces 100 units of a product, and then increases the workforce to 6 workers and the output rises to 120 units, the marginal product of the sixth worker is 20 units. This illustrates how productivity can change with the addition of resources.
Diminishing marginal product, on the other hand, occurs when the addition of an input results in smaller increases in output compared to previous additions. For instance, if that same factory employs a seventh worker and, instead of producing an additional 20 units, only produces an additional 10 units, this reflects diminishing returns. Essentially, each new unit of input contributes less and less to the overall output.
This concept is crucial for understanding how resources are allocated in production and can help businesses make informed decisions about hiring, investment, and resource management. Recognizing when diminishing returns set in can prevent overuse of resources and ensure efficient production processes.