Real-World Examples of Average and Marginal Product in Business

📚 Quick Study Guide

• 🧑‍🏫 Average Product (AP): Measures the average output produced by each unit of input (e.g., labor). Formula: $AP = \frac{Total\ Product}{Quantity\ of\ Input}$
• 🌱 Marginal Product (MP): Measures the change in output resulting from adding one more unit of input. Formula: $MP = \frac{Change\ in\ Total\ Product}{Change\ in\ Quantity\ of\ Input}$
• ⏳ Law of Diminishing Returns: States that as more and more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.
• 📈 Relationship: When MP > AP, AP is increasing. When MP < AP, AP is decreasing. When MP = AP, AP is at its maximum.

🧪 Practice Quiz

1. Which of the following best describes Average Product (AP)?
   1. The additional output from one more unit of input.
   2. The total output produced by all inputs.
   3. The average output produced by each unit of input.
   4. The change in cost from producing one more unit.
2. What formula is used to calculate Marginal Product (MP)?
   1. $MP = Total\ Product / Quantity\ of\ Input$
   2. $MP = Change\ in\ Total\ Product / Change\ in\ Quantity\ of\ Input$
   3. $MP = Total\ Revenue / Total\ Cost$
   4. $MP = Average\ Product * Quantity\ of\ Input$
3. A bakery hires a new baker. Initially, the output increases significantly. However, as more bakers are hired, the increase in output starts to diminish. This illustrates which economic principle?
   1. Economies of Scale
   2. Law of Diminishing Returns
   3. Comparative Advantage
   4. Opportunity Cost
4. A company's total product is 500 units when employing 10 workers. What is the Average Product of labor?
   1. 5 units
   2. 50 units
   3. 5000 units
   4. 0.02 units
5. If a company's total product increases from 100 to 120 units when one additional worker is hired, what is the Marginal Product of that worker?
   1. 220 units
   2. 100 units
   3. 20 units
   4. 1.2 units
6. When Marginal Product (MP) is greater than Average Product (AP), what is happening to Average Product?
   1. Average Product is decreasing.
   2. Average Product is constant.
   3. Average Product is increasing.
   4. Average Product is zero.
7. In a car manufacturing plant, adding more workers initially increases the number of cars produced significantly. However, the assembly line becomes overcrowded, and workers start getting in each other's way, leading to smaller increases in production. What concept does this demonstrate?
   1. Increasing Returns to Scale
   2. Constant Returns to Scale
   3. Law of Diminishing Returns
   4. Negative Returns to Scale