Average Product (AP)

Definition

Average product (AP) represents the output produced per unit of input. It is calculated by dividing the total product by the quantity of input used. AP helps determine how efficiently inputs are being utilized.

Related terms

Marginal Productivity Theory: The marginal productivity theory states that in a competitive market, workers' wages tend to equal their marginal contribution to production.

Diminishing Returns: Diminishing returns occur when adding more units of an input leads to smaller increases in output. At some point, additional inputs may result in decreasing average and marginal products.

Total Cost (TC): Total cost refers to all expenses incurred in producing a specific quantity of output. It includes both fixed costs and variable costs associated with production activities.