#### CA Foundation Business Economics Study Material Chapter 3 Theory of Production and Cost – Concepts of Product

Product i.e. output refers to the volume of goods produced by a firm in a particular period of time.

There are three concepts relating to the physical production by factors namely-

- Total Product (TP),
- Average Product (AP), and
- Marginal Product (MP).

**1. Total Product (TP):**

- The total output produced by all the factors per unit of time is called total product.
- Total product increases with an increase in the variable factor input.
- Column Nos. (1) and (2) of the following table shows a total product schedule.

**2. Average Product (AP):**

- The. average product means the total product per unit of a variable factor.
- In other words, it is the total product divided by the number of units of a variable factor.<
- Column No. (3) of the following table shows the average product of variable factor.

**3. Marginal Product (MP):**

- The marginal product means addition made to total product by the use of an extra unit of variable factor.
- It may be stated as-

MP_{n}= TP_{n}– TP_{n-1}

where,

MP_{n}= Marginal product when ‘n ’ units of variable factors are used

TP = Total Product

n = number of units of variable factors used. - Marginal Product may also be defined as the change in total output due to use of additional unit of variable factor

Where –

Δ = a small change Column No. (4) of the following table shows the marginal product schedule.

**Table: Product Schedule**

Units of Variable |
Total Product (TP) factor E.g. LABOUR |
Average Product (AP) |
Marginal Product (MP) |

1 | 10 | 10 | 10 |

2 | 30 | 15 | 20 |

3 | 60 | 20 | 30 |

4 | 80 | 20 | 20 |

5 | 90 | 18 | 10 |

6 | 90 | 15 | 0 |

7 | 85 | 12.1 | -5 |

Average product and Marginal product are related to one another.

**(i)** – When average product of the variable factor is rising, marginal product of the variable factor is more than its average product.

– So when average product curve is rising, the marginal product curve will lie somewhere above it.

**(ii)** – When average product of the variable factor is falling, marginal product of the variable factor is less than its average product.

– So when average product curve is falling, the marginal product curve will lie somewhere below it.

**(iii)** – When average product of the variable factor is maximum and constant, marginal product is equal to average product.

– In other words, the marginal product curve cuts the average product curve at its maximum point.