Marginal Production – Explanation

Marginal Production is a term that can be used in a number of ways, with each type of marginal production being measured on a different basis, as explained and demonstrated below:

Track A – Measurement basis: a given unit of time

– the number of units produced in the last hour or any other unit of time chosen (minute, day, month etc.), on condition that the unit of time is defined.

Let us assume that the unit time chosen is an hour. In this case, the last unit of time is the last hour of a continuum of hours starting with the first hour and ending with any hour selected.

If we select a continuum of 3 hours, the marginal production is the number of goods produced in the third hour. If we select a continuum of 5 hours, the marginal production is the number of goods produced in the fifth hour. If we select a continuum of 20 hours, the marginal production is the number of goods produced in the 20th hour.

Track B – Measurement basis: workers

– the total number of units of goods added as a result of the addition of the last worker from a continuum of workers commencing with the first worker and ending with the number workers chosen.

If we select a continuum of 3 workers, the marginal production is the number of goods produced by the third worker, and so on. In other words: the additional production attained by employment of the third worker (assuming that all the other factors of production remain unchanged).

Track C – Measurement basis: machines

– the total number of units of goods added as a result of the operation of the last machine of a continuum of machines we have selected.

If we have selected a continuum of 3 machines, the marginal production is the number of goods produced by the operation of the third machine, and so on. In other words: the additional production attained by operation the third machine (assuming that all the other factors of production remain unchanged).

Usually, the marginal production decreases with time or with each addition of workers and/or machines (a bakery will produce 150 loaves in the first hour, 100 loaves in the second hour and 50 loaves in the third hour). This phenomenon is referred to as declining marginal production.