Marginal product pulls average product

Compare the added worker's output with the crew's prior output per worker.

When MP exceeds AP, the added worker raises AP. When MP is below AP, the worker lowers AP. MP crosses AP at AP’s maximum in a smooth graph. Do not compare MP with total product: a positive MP can be below AP while total output continues to rise.

Use the prior crew average for a discrete check. In the table above, AP after three workers is 25 units per worker. The fourth worker adds 24 units, which is below that benchmark, so AP falls to 24.75. Total product still rises from 75 to 99. An MP below AP means the new worker pulls down output per worker, not that the worker subtracts from total output.

Specialization can make early marginal product rise. The first workers divide tasks and reduce downtime. Eventually the fixed ovens or space become crowded, and marginal product falls. Diminishing marginal returns begin when marginal product decreases, not when it becomes negative. Total product continues rising as long as MP is positive, rises at a decreasing rate when MP is positive but falling, reaches a maximum when MP is zero, and falls if MP becomes negative.

Locate diminishing returns

Successive workers add 8, 14, 18, 15, and 10 units. Specialization raises MP through the third worker. Diminishing marginal returns begin with the fourth because MP falls from 18 to 15, even though total product is still increasing.

Diminishing marginal returns assumes at least one input is fixed and technology is unchanged. Hiring a fourth worker while also installing another oven does not isolate labor’s marginal product at a fixed plant. A productivity improvement can shift the entire relationship upward, temporarily masking crowding. Hold the specified conditions constant before locating the first decline.

The law does not say every added worker is less capable. The fourth worker can have identical skill to the third and still add less because the shared oven, counter, or supervisor becomes the constraint. Marginal product is a property of the worker within the input combination, not a pure personal rating.

Marginal product also links to cost. If each worker costs the same wage, a high MP spreads that wage over many added units and gives low marginal cost. When MP falls, more labor expense is needed for each added unit and MC rises. The turning point of physical productivity therefore helps explain the U shape of marginal cost.

In a table, compute the entire MP column before declaring where diminishing returns begin. The first low value may be followed by a higher value due to specialization. The onset is the first worker after the peak from which the relevant declining pattern begins, using the schedule supplied rather than an assumption that it starts immediately.