Inputs and Outputs of Production

Total Product

A firm's total product is its total output for a given amount of inputs.

Total product is the total quantity of output produced by a firm for a given amount of inputs. Total product influences the short-run considerations made by a firm because it shows what factors contribute to an increase in labor. A total product curve is a graphical representation of the way a firm's total output varies during the short run, as one or more inputs are held fixed and one input (usually labor) is variable. Taking labor as an example of such an input, as the amount of labor increases (more workers are hired or existing workers work more overtime), output changes. Starting from zero output, as more labor is added, output typically increases at an increasing rate, so the curve becomes steeper.

For example, if one worker is hired, he or she will be doing everything, so production will be inefficient as there is no division of labor, which is the assignment of different parts of a manufacturing process or task to different people in order to improve efficiency that leads to specialization. If there is no division of labor, there is no possibility of specialization of labor (concentrating on a single task to develop particular skills relevant to that task), and the worker wastes time turning from one task to another. As a second worker and then a third worker (and so forth) are added, there will be enough workers to specialize so that each does what he or she is best at and does not waste time switching between tasks. As more workers are hired, the scope for further division of labor and specialization decreases, so the slope of the curve flattens. At a later stage, the number of workers has become so large that they are difficult to manage, may get in each other's way, and cannot all be usefully employed at the same time, so the extra output each produces gets smaller and the curve reaches a peak, after which additional hires actually reduce output. Thus, a total product curve is usually S-shaped. At high levels of variable input, hiring an additional worker adds cost and reduces output, so a manager will maximize the output by ceasing to hire more workers. This is an example of diminishing marginal returns, which is a decrease in marginal product produced with an increase of employees. A factory creating plastics hires many new employees, which increases output, but then the factory becomes crowded and workers have trouble moving around each other, decreasing efficiency.

Total Product Curve

Total product is the overall amount of product created by a firm. The total product curve (TP) is usually S-shaped. It shows that additional units of a single input, such as labor, holding all other inputs constant, initially produce increasing quantities of output but will reach a stage of diminishing, and eventually negative, returns. Diminishing returns means that each additional input unit produces fewer additional output units than preceding input units. Negative returns mean that an additional input unit decreases the quantity of total output.