![]() Green Joint Pizzeria opens for business but with a single worker. For convenience sake, we shall name the business as Green Joint Pizzeria. Let us revisit the example of the pizzeria cited above. However, one must learn how to calculate the diminishing marginal product of the input for better understanding. With this information, a business manager will make better decisions concerning the size of inputs to increase for the business to hit optimum production levels. This is because it helps them to better optimize the productivity of inputs. It is crucial for managers and business owners to understand the concept of diminishing marginal product. How to Calculate Diminishing Marginal Product As such, the productivity of each worker fell because they started getting in each other’s way. ![]() What happened? It could be that as the workers increased, the space in the kitchen became smaller. This happens although the total productivity of the pizzeria is increasing. ![]() What if you added a fourth worker and the pizzas produced increase to 19 but stay at 19 when you add a fourth one?įrom the example, it is clear that the margin of extra pizzas produced begin to fall from the third worker. Adding another worker to make them three may bring the pizzas made per day to 17. When you add one more worker, they may produce 14 pizzas per day. Therefore, the marginal product of the worker is six. When you hire one worker, he/she may be able produce six pizzas per day. For example, if you open a pizzeria but without employees, there will be zero pizzas produced. The marginal product of an input is high during the initial stages. However, soon the manager will realize that more of the input produces insignificant change in the output. One of the solutions available is to increase the size of one input while the others stay unchanged. Usually, the manager has to decide on what should be done to increase productivity. Whatever decision the manager makes, it should be gainful in terms of creating or increasing profits. The primary goal of a business is to maximize profits. This concept helps managers to refine their decisions concerning how to adjust inputs in a way that maximizes productivity. Definition: Diminishing marginal product is an economic concept that describes the phenomenon where the more input that is employed in a production process the lesser the margin of extra output obtained.
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