Relation Between TP/MP And AP/MP Curves

1) Relation between Total product(TP) and Marginal Product(MP)

We will explain the relation between TP and MP by the below graph:

marginal product

1) So long as MP is increasing , TP is increasing at increasing rate.

MP is rising till point b in the second graph and so is TP is increasing at increasing rate till
point a in the first graph.
2) When MP starts dimnishing , TP increases only at a dimnishing rate.
MP starts dimnishing after point btill point e.
TP is increasing after point a but at a dimnishing rate till point f(due to falling MP).
3) When MP = 0, there is no addition to TP
At point e, MP is zero and TP is maximum at point f.
4) When MP is neagtive , TP starts declining
After point e MP becomes negative and TP after point f starts falling.

We can conclude the above observation in other way round also:

a) When TP increases at an increasing rate, MP increases.
b) When TP increases at dimnishing rate, MP declines
c) When TP is maximum, MP is Zero
d) When TP begins to decline, MP becomes negative

2) Relation between Average product(AP) and Marginal Product(MP)

 average product

1) So long as MP curve lies above AP curve, the AP curve is positively sloping curve i.e. AP is
rising.
This can be seen in the above digram before point d.
2) When MP curve intersects AP curve, this is the maximum point on the AP curve, where AP is
at maximum.
This happens at point d
3) When MP curve lis below the AP curve, the AP curve slopes downward, i.e AP is declining.
This happens after point d

We can conclude the above observation in other way round also:

a) When MP > AP, this means that AP is rising
b) When MP = AP, this means that AP is maximum
c) When MP < AP, this means that AP is falling
Law Of Variable Proportion
The law of variable proportion states that as more and more units of variable factors are
applied to the given quantity of a fixed factor, the total product may increase at an increasing
rate initially, but eventually it will increase at a diminishing rate.

Explaining the above law by taking an example:

A farmer is producing wheat, he has land as a fixed factor and labour as a variable factor.
Since land is a fixed factor, he can produce more of wheat only by using more and more of
labour.
Will every additional unit of labour employed on the given land yield the same amount of
additional output of wheat?
No, it can never happen. If MP (marginal product/additional output) of labour was to remain
constant, then a country like India would have produced more and more of wheat using more and
more of labour on the same piece of land. It would have never faced the problem of food.
So MP eventually dimnish.This is due to the fact that, there is some ideal ratio of factors of
production.
If L (labour) and K (capital) are the two factors and K is constant than ideal ratio is struck by
varying the use of L.
If ideally, 4 full time workers are needed to cultivate 2 hectares of land, MPL (marginal product
of labour) may increase when initially less than 4 workers are employed.
MP should be maximum when 4 workers are employed, and must start diminishing when more
than 4 workers are employed.
If the number is increases further, we reach a point when another additional unit of labour adds
nothing to total output i.e. MP = 0. MP may even become negative.

Tabular explanation of the Law.

Units Units Total Marginal

of of Product Product
Land Labour
Increasing
1 1 2 2 MP
1 2 5 3 Implying
1 3 9 4 increasing
returns to a
factor

1 4 12 3 Diminishing
1 5 14 2 MP
1 6 15 1 Implying
Diminishing
returns to a
factor

1 7 15 0 Negative
1 8 14 -1 MP
 Implying
Negative
returns to a
factor

The table above shows that:

1) As more and more units of labour (variable factor) are used, MP (marginal product) tends to
rise till 3 units of labour are employed and TP(total product) increases at the increasing rate.
This is a situation of increasing returns to the factors.
2) With the application of 4th unit of labour, MP starts decreasing and TP increases only at the
decreasing rate.
This is a situation of decreasing returns to the factors.
3) Diminishing MP reduces to zero. Total output is maximum (15), when marginal output is
zero.
4) Eventually, MP may be negative. TP starts declining (from 15 to 14) when 8th unit of labour is
employed. This is a situation of negative returns to the factors.

Diagrammatic explanation of the Law.

Law of Variable Proportion

1) MP tends to rise till OL units of labour are used.

This corresponds to point E on the MP curve.This is a situation of increasing returns to the
factors.
When MP is rising, TP tends to rise at an increasing rate.
This occurs till point K (point of inflexion- It is the point from where slope of TP changes.
Up to this point, TP has been increasing at increasing rate but after this point TP increases at
diminishing rate) on the TP curve.
This is a situation of increasing returns to the factors.
2) Beyond OL units of labour, MP tends to decline, and TP increases at diminishing rate.
This occurs between point E and S on MP curve and between K and T on TP curve.
This is a situation of decreasing returns to the factors.
3) When employment of labour exceeds OS units, MP becomes negative.
Accordingly TP starts declining.
This is a situation of negative returns to the factors, occurring beyond point T on TP curve and
beyond point S on MP curve.

Causes Of Increasing returns:

1) Fuller utilisation of Fixed Factors : In the initial stages, fixed factor(such as machine)
remains underutilised.Its fuller utilisation calls for greater application of the variable
factor(labour).
Hence, initially(so long as fixed factor remain underutilised) additional units of the variable
factors add more and more to total output, or marginal product of the variable factor tends to
increase.
2) Increased efficency of the variable factor : Additional application of the variable
factor(labour) causes process based division of labour that raises efficency of the factor.
Accordingly, marginal productivity of the factor tends to rise.
3) Better coordination between the factors : So long as fixed factor remains underuttilised,
additional application of the variable factor tends to improve the degree of coordination between
the fixed and variable factors.As a result, total output increases at the increasing rate.

Causes Of Dimnishing returns:

1) Fixity of the factor : As more and more units of variable factor is combined with the fixed
factor, the latter gets excessively utilised.
It suffers greater wear and tear and loses its efficency.Hence, dimnishing returns.
2) Imperfect factor substitutability : factors of production are imperfect substitute of each
other. More and more of labourcannot be continiously be used in place of additional capital,
hence dimnishing returns.
3) Poor coordination between the factors : Continuous increasing application of the variable
factor along with fixed factor beyond a point crosses the limit of ideal factor ratio.
This result in poor coordination between the fixed and variable factors. Hence, dimnishing
returns.

Causes Of Negative returns:

1) Overcrowding : If we keep on adding variable factor with the given quantiy of a fixed factor,
this will lead to overcrowding on the fixed factor(excessive variable factor on the given quantity
of fixed factor). There will be lower availability of tools and equipment per worker. Productivity
will fall.
2) Management Problem : Use too much of variable factor creates the problem of effective
management, it will become difficult to manage them, leading to decrease in efficency.
Relation Between Average Cost And Marginal Cost
There is an important relation between the average cost and marginal cost curves. The relation is
shown in table and in graph.

Tabular representation
Units Total Marginal Average
of Cost Cost cost
Output AC =
TC / Q
0 10 -
1 20 10 20
2 28 8 14
3 34 6 11.3
4 38 4 9.5
5 42 4 8.4
6 48 6 8
7 56 8 8
8 72 16 9

Graphical representation

average cost

From the above table and graph following observations can be made between AC and MC

1) When AC falls, MC is lower than AC:

When MC is less than AC, AC falls with increase in output.
In the above table AC is falling till it becomes Rs. 8, and MC remains less than Rs. 8.
In the above graph, AC is falling till point E, and MC continues o be lower than AC.
In this case, MC falls more rapidly than the AC. That is why when MC curve is falling; it is
below the AC curve.

2) When AC rises, MC is greater than AC :

When AC starts rising, MC is greater than AC.
In the above table, when AC rises from Rs. 8 to Rs. 9, MC rises from Rs. 8 to Rs. 16.
In the above graph, AC starts rising from point E.
And beyond E, MC is higher than AC.
3) MC cuts AC at its lowest point:
When AC is minimum then MC = AC.
In the above table, at the 7th unit, AC is minimum, i.e., Rs. 8. The MC is also Rs. 8
In the above graph, MC curve is intersecting AC curve at its minimum point E.

Conclusion:
a) When AC is falling
MC < AC
b) When AC is rising
MC > AC
c) When AC is constant (as at point E)
MC = AC
d) MC is always to the left of AC, and cuts AC from its lowest point

Relation between TC and MC curve

From the below graph following observations can be made between TC and MC

marginal cost

1) Up to point Q, TC is increasing at a decreasing rate, because MC is decreasing.

2) Beyond point Q, TC is increasing at a increasing rate, because MC is increasing.
3) At point Q, TC stops increasing at a decreasing rate, because MC is minimum(at point R).
4) MC is the rate of TC.
5) The relation between TVC and MC will be the same as between TC and MC, because the
difference between TC and TVC is constant ( equal to fixed cost).