State and Explain the Relationship Between Average and Marginal Productivity

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The Answer is The relationship between average and marginal productivity is an important concept in economics and production theory. Average productivity refers to the total output produced divided by the total input used, while marginal productivity refers to the change in output resulting from a one-unit change in input.

The relationship between average and marginal productivity is such that when marginal productivity is greater than average productivity, the average productivity will increase. Conversely, when marginal productivity is less than average productivity, the average productivity will decrease.

This relationship can be explained by the law of diminishing returns, which states that as more units of a variable input are added to a fixed input, the marginal productivity of the variable input will eventually decrease. This leads to a situation where the average productivity will also decrease, as the additional units of input are not contributing as much to the total output.

In practical terms, this means that a firm should continue to add units of a variable input as long as the marginal productivity is greater than the average productivity, as this will lead to an increase in overall output. However, once the marginal productivity falls below the average productivity, it is no longer efficient to add more units of the variable input.

Understanding the relationship between average and marginal productivity is crucial for firms to make informed decisions about production levels and input usage, as it directly impacts their overall output and efficiency.

State and Explain the Relationship Between Average and Marginal Productivity

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