Economics Cost Of Production Questions
The concept of average product refers to the average output produced by each unit of input, typically labor, in the production process. It is calculated by dividing the total output by the total units of input used.
The relationship between average product and production costs is that average product directly affects the cost of production. As the average product increases, it means that each unit of input is producing more output, leading to higher productivity and lower production costs. This is because the fixed costs, such as machinery and equipment, are spread over a larger output, reducing the average cost per unit.
On the other hand, if the average product decreases, it means that each unit of input is producing less output, resulting in lower productivity and higher production costs. In this case, the fixed costs are spread over a smaller output, increasing the average cost per unit.
Therefore, the average product plays a crucial role in determining the efficiency and cost-effectiveness of production. A higher average product leads to lower production costs, while a lower average product leads to higher production costs.