PRODUCTION FUNCTION
TP, MP, AP, AND
THE LAW OF VARIABLE PROPORTION
1 RUCHITA GUPTA 23/342
TEAM 2 TISHA KAMRA 23/366
MEMBERS
3 GEETIKA ARORA 23/339
4 MONIKA RANA 23/471
TOTAL PRODUCT
Total Product (TP) — also known as Total Physical Product (TPP) — is the total quantity of output
produced by a firm during a specific period of time using a given quantity of inputs (such as labor,
land, and capital).
👉 In simple terms:
It is the sum total of all goods produced when a certain amount of variable input is employed,
keeping other inputs constant.
Formula
TP=Sum of total output produced by all units of a variable input.
∑
TP= (Total Output Produced)
TP increases as more units of variable input (like labour) are added, up to a point.
Example:
If 1 worker produces 10 units, 2 workers produce 25 units, and 3 workers produce 40 units, then —
Total Product for 3 workers = 40 units.
TOTAL PRODUCT
Labor (Units) Total Product (TP) Stage of Returns Explanation
Each additional labor adds more output
1 10 Increasing Returns
than before.
2 25 Increasing Returns Output rises faster — efficiency improves.
3 45 Increasing Returns Maximum efficiency — TP rises steeply.
4 60 Diminishing Returns Output still rises, but at a slower rate.
5 70 Diminishing Returns Additional workers contribute less to TP.
Total product nearly stops increasing or
6 75 Negative Returns
could start declining.
1️⃣ Stage I – Increasing Returns to a Factor
INTERPRETATION
Range: From 1 to 3 units of labor
Shape of Curve: TP rises at an increasing rate (steep slope)
Reason:
Better utilization of fixed resources
Division of labor and specialization increase efficiency
2️⃣ Stage II – Diminishing Returns to a Factor
Range: From 3 to 5 units of labor
Shape of Curve: TP continues to rise, but at a decreasing rate (flattens)
Reason:
Fixed resources become limiting
Efficiency of each additional worker falls
3️⃣ Stage III – Negative Returns to a Factor
Range: Beyond 5 units of labor
Shape of Curve: TP flattens or starts declining
Reason:
Overcrowding of labor
Inefficient use of fixed inputs
MARGINAL PRODUCT (MP)
Marginal Product (MP) measures the extra output produced when one more unit of
a variable input (like labor) is employed, while keeping other inputs (like capital or
land) constant.
It helps firms understand how efficiently additional resources contribute to total
production.
Formula
MP=ΔQ/ΔLWhere:
ΔQ = Change in total output (Total Product, TP)
ΔL = Change in labor (units of variable input)
Example:
If total output increases from 25 to 45 when labor increases from 2 to 3 units, then:
MP = 45 - 25/3 - 2 = 20
MARGINAL PRODUCT (MP) Total Marginal
Labor (L) Product Product
(TP) (MP)
------------ --------------- ---------------
----- --------
1 10 10
2 25 15
3 45 20
4 60 15
5 70 10
6 75 5
7 75 0
8 73 -2
From 1 to 2 workers . Output rises from 10 → 25.. MP=25−10=15. Each extra
worker increases total output significantly .
From 2 to 3 workers: Output rises from 25 → 45. MP=20. Efficiency improves
further due to teamwork and specialization.
From 3 to 4 workers: Output rises from 45 → 60. MP=15. Still positive, but
smaller increase — fixed space and equipment limit efficiency.
From 4 to 5 workers: Output rises from 60 → 70. MP=10. Diminishing marginal
returns start showing — overcrowding reduces productivity.
From 5 to 6 workers: Output rises from 70 → 75. MP=5. Output increase is very
small — too many workers sharing limited resources.
From 6 to 7 workers : Output remains same and MP= 0 . This shows with
additional increase in labour there is no change in total product.
From 7 to 8 workers : Output start decreasing and MP is negative. This happens
because excessive use of an input can lead to overcrowding and inefficiencies, so
the extra input actively hinders production instead of contributing to it.
Interpretation
High MP: Each additional worker adds a large amount of output — production is
efficient.
Falling MP: Additional workers add less output — efficiency starts to drop
(diminishing returns).
Zero or Negative MP: Too many workers cause inefficiency or overcrowding.
AVERAGE PRODUCT (AP)
Average Product (AP) refers to the output produced per unit of a variable
input, while keeping other factors of production constant. INPUT TP AP
It tells us, on average, how much each unit of the variable factor ( like 1 10 10
labour) contributes to the total production. 2 25 12.5
Average Product measures the efficiency or productivity of each unit of a 3 45 15
variable input 4 60 15
Formula
5 65 13
AP=TP/L
Where,
AP = Average Product
20
TP = Total Product
L = Units of the variable factor (usually labour) 15
The Average Product Curve shows how the average output per unit of the 10
variable factor changes as more units of the variable input are employed.
5
Shape of AP Curve:
The AP curve first rises, reaches a maximum point, and then falls. 0
The rising part indicates increasing returns, while the falling part 1 2 3 4 5
indicates diminishing returns.
RELATIONSHIP BETWEEN
TP, MP, & AP
STAGE TP MP AP
Increasing at
I increasing rising rising
rate
increasing at
falling but
II decreasing falling
positive
rate
III decreasing negative falling
STAGE 1 STAGE 2 STAGE 3
TP increases at an TP continues to increase but TP starts to decline.
increasing rate. at a decreasing rate. MP becomes negative.
MP and AP both rise. MP and AP both fall, but AP continues to decline.
Occurs due to: MP remains positive. Occurs when too many
Better utilization of fixed Caused by: variable factors are
factors. Limited availability of fixed combined with fixed
Division of labour and factors. factors, leading to
specialization. Overcrowding of variable inefficiency, congestion,
Improved efficiency of inputs. and overutilization.
variable inputs. This is the rational stage —
Ends when AP is maximum. producer operates here
because total product still
rises, and resources are
efficiently used.
LAW OF
VARIABLE
PROPORTION
Meaning
This law explains how output changes when we change one input while keeping
all other inputs constant.
“As more and more units of a variable factor (like labour) are applied to a fixed
factor (like land or machinery), the total product increases initially at an
increasing rate, then at a diminishing rate, and eventually starts declining.”
The Law of Variable Proportion, also known as the Law of Diminishing Returns.
Elaborate on what you want
1. Technology 2. Only one
remains constant – factor is variable
No change in – All other
production factors remain
techniques. fixed.
Assumption
3. Homogeneous 4. Short-run
units – All units concept – Because
of the variable in the short run,
factor are some factors are
identical fixed.
Stages
Stages 1. Increasing returns
When we start adding units of the variable factor (like labour),
the Total Product (TP) increases at an increasing rate.
Average Product (AP) and Marginal Product (MP) both rise.
This happens because the fixed factors are underutilized and the efficiency increases.
Eample: When workers start cooperating and specializing in tasks, productivity improves.
Stage 2. Dminishing returns
After a certain point, as we continue adding more labour,
the Total Product still increases but at a diminishing rate.
MP starts falling but remains positive.
AP also starts declining after reaching its maximum.
Eample: When too many workers are added, the fixed resources like machines or land become crowded.
This is the most important stage of production — firms usually operate in this stage.
Stages
Stage 3. Negative returns
If we keep adding even more units of the variable factor,
the Total Product starts decreasing.
MP becomes negative and AP continues to fall.
This happens due to over-utilization of the fixed factor and inefficiency.
Example: Too many workers cause chaos and reduce total output.
Real life example
*Imagine a farmer using a fixed piece of land:
1 worker = output increases rapidly
2–3 workers = output grows but slowly
5–6 workers = overcrowding, output falls
So, the law applies widely in agriculture, manufacturing, and services where one resource is fixed in the short run.
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