Marginal Product

Marginal product is the amount of increased output associated with a one-unit increase in a factor of production while holding all other factors constant. Understanding the marginal product of inputs in a producer’s production function helps describe how firms can allocate the optimal mix of inputs to produce a specific target output.

The marginal product of an input can be estimated as the change in quantity of output divided by the change in level of input. In other words, marginal product captures how much additional product is associated with a one-unit change in the level of a specific input, holding all other inputs constant. Algebraically, the marginal product associated with an input X is captured as $MP=\Delta q/\Delta X$, where MP represents marginal product, q represents the quantity produced and X...