The last column of Table 5.2 lists the marginal product of labor (abbrevi-
ated MPL). This marginal productis the additional output produced by an addi-
tional unit of labor, all other inputs held constant. For instance, increasing
labor from 20 to 30 workers increases output by 180 135 45 units, or 45/10
4.5 units per worker. A further increase from 30 to 40 workers implies an MPL
of 5.0 units per worker. Mathematically, labor’s marginal product is MPL
dQ/dL. In other words, labor’s marginal product is the change in output per
unit change in labor input.
In our example, MPLfirst rises (for increases up to 40 workers), then
declines.^2 Why does MPL rise initially? With a small workforce, the typical
worker must be a jack-of-all-trades (and master of none). Increasing the num-
ber of workers allows for specialization of labor—workers devoting themselves to
particular tasks—which results in increased output per worker. Furthermore,
additional workers can use underutilized machinery and capital equipment.
Figure 5.1a graphs labor’s total product. Consider the total product curve
for a 10,000-square-foot plant. Initially, the total product curve increases rap-
idly. As the number of workers increases, the curve’s slope becomes less steep,
then reaches a peak and declines. This reflects labor’s marginal productivity.
When MPLis large (see Figure 5.1b), the total product curve is steep. As
MPLdeclines, the curve becomes less steep. The product curve peaks when
MPLapproaches zero and begins to decline when MPLbecomes negative.
Figure 5.1a also displays labor’s total product curve for a 20,000-square-foot
plant (with output rates taken from Table 5.1). As indicated, the larger plant
generates an increased rate of output for the same workforce. Finally, Fig-
ure 5.1b graphs labor’s marginal product for a 10,000-square-foot plant.194 Chapter 5 Production(^2) Indeed, labor’s marginal product becomes negative for additional workers beyond 120; that is,
total product actually declines when “too many” workers are employed.
CHECK
STATION 1
Graph the marginal product of labor if the firm produces output using a 30,000-square-
foot plant. Compare this with the MPLusing a 10,000-square-foot plant. Explain the
difference.
THE LAW OF DIMINISHING MARGINAL RETURNS The declining marginal
product of an input (like labor) represents one of the best-known and most
important empirical “laws” of production:
The Law of Diminishing Marginal Returns. As units of one input are added (with all
other inputs held constant), resulting additions to output will eventually begin to
decrease; that is, marginal product will decline.
In the preceding example, diminishing returns to labor occur beyond 40 work-
ers. At this point the most productive jobs already are filled, specialization is
being fully exploited, and the plant and equipment are being used efficiently.
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