Definition: Average product is the number of units produced from a single unit of production. In other words, it’s a productivity measure that shows how productive factors of production are by comparing the total product produced and the number of inputs needed to produce a product.
What Does Average Product Mean?
What is the definition of average product? As the average product increases, so does the productivity of the input. Thus the higher the AP, the more productive the input becomes. Generally, the relationship between total product and factors of production is linear but once a certain point is reached limiting factors begin to set in.
To calculate the average product formula, the total product, or average physical product (APP) must be known. Total product is divided by the quantity of the variable input to find average product.
Let’s look at an example.
Example
In some countries, footballs and baseballs are still handstitched. This type of labor isn’t common in the United Stated, so it is typically outsourced to other countries. In these foreign countries, building codes and worker’s rights differ from what many Americans are accustomed to.
Let’s say there is a factory in another country that houses the workers who produce these balls. In every factory, there are about 50 workers. The supervisor began hiring new workers a couple months ago when he saw that the average physical product was stagnating.
When the factory first opened, he had 4 employees; he placed one in each corner of the building to prevent distractions. At that point in time, the total product per day equaled 100 balls. If we divide the total product (100 balls) by the number of inputs (4 workers), we calculate an average product of 25 balls per worker.
Satisfied with the productions but wanting more, he continued adding more and more workers until he reached 30. At 30 workers, he noted that they produced 780 balls a day. Thus, each worker produces an average of 26 balls per day.
Summary Definition
Define Average Product: Average product means the ratio of products produced compared with units required to produce the products.
