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In economics, the marginal product or marginal physical product is the extra output produced by one more unit of an input (for instance, the difference in output when a firm's labor is increased from five to six units). Assuming that no other inputs to production change, the marginal product of a given input (X) can be expressed as:
- MP = ΔY/ΔX = (the change of Y)/(the change of X).
In neoclassical economics, this is the mathematical derivative of the production function.... Note that the "product" (Y) is typically defined ignoring external costs and benefits. In the "law" of diminishing marginal returns, the marginal product of one input is assumed to fall as long as some other input to production does not change.
In the neoclassical theory of competitive markets, the marginal product of labor equals the real wage. In aggregate models of perfect competition, in which a single good is produced and that good is used both in consumption and as a capital good, the marginal product of capital equals its rate of return. As was shown in the Cambridge capital controversy, this proposition about the marginal product of capital cannot generally be sustained in multicommodity models in which capital and consumption goods are distinguished.
Marginal product is the slope of the total product curve and is given by:
MP = Total product Quantity of labor units
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