Chapter 11.1 – Demand for Labor
Marginal Product of Labor (Physical)
The marginal product of labor is the change in output that results from employing an added unit of labor.
Learning Objectives
Define the marginal product of labor
Key Takeaways
Key Points
- The marginal product of labor is not always equivalent to the output directly produced by that added unit of labor.
- When production is discrete, we can define the marginal product of labor (MPL) as ΔY/ΔL.
- When production is continuous, the MPL is the first derivative of the production function in terms of L.
- Graphically, the MPL is the slope of the production function.
- The law of diminishing marginal returns ensures that in most industries, the MPL will eventually be decreasing.
Key Terms
- returns to scale: A term referring to changes in output resulting from a proportional change in all inputs (where all inputs increase by a constant factor).
- marginal product: The extra output that can be produced by using one more unit of the input.
In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. This is not always equivalent to the output directly produced by that added unit of labor; for example, employing an additional cook at a restaurant may make the other cooks more efficient by allowing more specialization of tasks, creating a marginal product that is greater than that produced directly by the new employee. Conversely, hiring an additional worker onto an already crowded factory floor may make the other employees less productive, leading to a marginal product that is lower than the work done by the additional employee.
When production is discrete, we can define the marginal product of labor as ΔY/ΔL where Y is output. If a factory that is initially producing 100 widgets hires another employee and is then able to produce 106 widgets, the MPL is simply six. When production is continuous, the MPL is the first derivative of the production function in terms of L. Graphically, the MPL is the slope of the production function.
Table 11.1 gives another example of marginal product of labor. The second column shows total production with different quantities of labor, while the third column shows the increase (or decrease) as labor is added to the production process.
| Labor (number of employees) | Output (number of toys per hour) | Marginal Product of Labor |
|---|---|---|
| 0 | 0 | 0 |
| 1 | 6 | 6 |
| 2 | 11 | 5 |
| 3 | 14 | 3 |
| 4 | 21 | 7 |
| 5 | 22 | 1 |
| 6 | 24 | 2 |
| 7 | 28 | 3 |
| 8 | 27 | -1 |
| 9 | 28 | 1 |
| 10 | 26 | -2 |
The law of diminishing marginal returns ensures that in most industries, the MPL will eventually be decreasing. The law states that “as units of one input are added (with all other inputs held constant) a point will be reached where the resulting additions to output will begin to decrease; that is marginal product will decline.” The law of diminishing marginal returns applies regardless of whe