Average and Marginal Productivity Diagram

We have put some stress on the difference between average and marginal productivity. Both are important, but for a model of short-run profit-maximizing supply, marginal productivity is the more important. and the two are quite different.

Here are the average and marginal productivities for the same numerical example in the page before last. Notice how both average and marginal productivity decrease as the labor input increases. But the marginal productivity declines faster than the average productivity, pulling the average productivity down after it. The downward slope of the marginal productivity line expresses the Law of Diminishing Returns, and the downward slope of the average productivity is also a result of the law.

Figure 2: Average and Marginal Productivity

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