Define production function. Show with the help of a diagram the relationship among ‘total product (TP)’, ‘marginal product (MP)’, and ‘average product (AP)’.

 Total product (TP)

Total product is the amount of output produced from land with given number of laborers employed.

Average Product (AP_L)

The average product of labor (AP_L) is total product (TP) divided by the number of laborers employed AP_L = TP_L/L

Marginal product (MP_L)

The marginal product of labor (MP_L) is the change in the total product due to a change in labor. MP_L = ΔTP/ΔL

In our example in table 1, there are increasing returns to labor for the first three units of labor employed. The law of diminishing returns sets in with addition of the fourth worker. Both the average and the marginal products increase at first and then decline. The marginal product declines faster than the average product. When 8 men are employed, total product is at a maximum. The marginal product of the 9^th laborer is negative.

Thus,If MP > 0, TP will be increasing as L increases

1.      If MP = 0, TP will be constant as L increases

2.      IF MP < 0, TP will be falling as L increases.

Graphical presentation of the law of diminishing retu

Table 2: Properties of total product, marginal product and average product curves during the three stages of production

Total Product	Marginal Product	Average Product
Stage I (Increases at an increasing rate)	Increases	Increases
Stage I (Increases at a diminishing rate)	Reaches a maximum and begins to diminish	Continues to increase
Stage II (Continues to increase at a diminishing rate)	Continues to diminish	Reches maximum and begins to diminish
Stage II (Reaches maximum)	Becomes zero	Continues to diminish
Stage III (Diminishes)	Becomes negative	Continues to diminish but must always be greater than zero