Thursday, September 01, 2005

The marginal product of a worker

Marginal product is defined as the amount that the marginal worker produces: the difference in output in a factory with n workers and n+1 workers.

An unreliable way of understanding this is to add workers sequentially: think of a factory with zero workers, then add one worker and see how much is produced and consider that difference the "marginal product of the worker." Then add a second worker and see how much is produced compared to a factory with one worker and consider that difference the marginal product of the second worker. This is wrong (unless the factory has either one or two employees at its profit maximizing production level).

The accurate way is to look at a factory producing at the profit maximizing production level and then remove worker x and see what happens to production. This difference is the marginal productivity of x. Then replace worker x and remove worker y. See what happens to production...You get the idea. It is in this sense that workers are paid their marginal product in general equilibrium; not in the sequential sense.


Blogger henry said...

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9:15 PM  

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