15.4: The Marginal Product of Labor I

The marginal product of labor, or MP_L, measures the increase in output resulting from an additional unit of labor. While doing this analysis, it is assumed that the other inputs are kept constant. For example, a firm may increase the number of workers from three to four. Its output rises from 300 units to 370 units. The marginal product of the newly hired labor is 70 units. This is the difference between the output with four workers (370 units) and the output with three workers (300 units).

Diminishing Marginal Product of Labor

The concept of diminishing marginal product of labor implies that as the number of workers increases, the marginal product of each additional worker decreases. For example, the firm may hire another worker, increasing the number of workers to five. If the output rises from 370 units to 420 units, the marginal product of the fifth worker is 50 units. This additional output of 50 units on the hiring of the fifth worker is less than the 70 units added to the output on the hiring of the fourth worker.

Economic theory explains that, when all other input factors are held constant, the additional output from each new worker decreases continuously. In other words, the output added by hiring a new worker is smaller than the output added by the previous worker. This diminishing pattern of marginal product continues as more workers are employed. It is important to note that diminishing MPL does not result from differences in worker skill or quality. All workers are assumed to have identical skills and productivity levels.For example, when a new worker is added to a fixed amount of equipment, each worker has less access to the equipment. This can decrease the MP_L when adding an additional worker.

The marginal product of labor, or MP_L, is the additional output that results from adding one more unit of labor, holding all other inputs constant.

For example, in a mango orchard, two workers harvest 360 mangoes in a day.

The orchard hires another mango picker, and the output rises to 480 per day. So, the marginal product of the newly hired worker is 120.

Also, the firm experiences the law of diminishing marginal product, which means that as more labor is added, the additional output gained from each new worker decreases.

Initially, a worker can easily pick the most accessible mangoes, such as those hanging lower on the tree.

As the number of workers increases, the most accessible mangoes become depleted. So, an additional worker must make more effort to pick mangoes, such as climbing higher into the trees. This extra effort means that each new worker adds less to the total output than the one hired earlier, illustrating the law of diminishing marginal product.