Total Product – How to Calculate Total Product Value | Bizfluent

Total Product

Explaining the Total Product Curve The total product (TP) curve graphically explains a firm’s total output in the short run. It plots total product as a function of the variable input, labor. Marginal product (MP) of labor is the change in output generated from adding one more unit of the variable input, labor.

Share on Facebook As an economic concept, total product compares a company’s amount of output to a fixed quantity of inputs. As an analysis of short-run production, total product usually examines variables that affect output, such as raw materials and associated waste or direct labor costs and levels.

Fixed costs, such as administration and overhead, don’t change with input or output levels and aren’t typically part of the total product picture. The concepts of average product and marginal product derive from calculating total product.

Total product pinpoints how much product a company can produce by utilizing the law of diminishing marginal return. Total product can also refer to the consumer experience with regard to a purchase experience from the quality of the purchase itself to all associated sales supports. Total Product Calculation and Analysis Consider a manufacturing facility with a fixed amount of equipment. A single employee can produce 20 units of product on this equipment in an eight-hour workday. For the total product equation and analysis, workers are the input while units of product are the output.

For a single worker, the total product is 20 for one shift. Adding a second worker changes the input to 2 while output changes to This increase of 30 is called the marginal output.

The increase from 20 units per worker to 25 per worker is called the average product, and the total product is now Improvements in total product continue to climb with each additional employee until there are seven workers, who produce units. Adding nine and 10 employees creates inefficiencies, and total product drops below with these additions. Therefore, it’s established that the maximum total product of the company with the equipment it has in place is The Law of Diminishing Marginal Return However, an astute supervisor notices that while two workers produced 25 units per person, the seven workers who reached a total output of did so with an average product of fewer than 18 units per person.

In fact, looking over total product for each person added, the supervisor finds that three people maintain 25 units per person, but adding a fourth staff member drops per person output to less than 24 units. Therefore, the fourth employee is the point of diminishing marginal return.

Total product continues to climb until is reached, but maximum labor dollar value is achieved at three employees. This demonstrates how total product, while important, isn’t a singular point of analysis. Using this example, the company could double its equipment and produce a total product of units with six employees, versus units with six employees working on a single station.

The business would now need to analyze whether there is cost justification to add a second station. The Total Product Experience When a consumer reaches a buying decision and purchases a product, every aspect of that purchase — and beyond — comprise the total product experience for the consumer. This is unrelated to the economic definition of total product, but it’s an important part of the sales aspect of any business. A company’s reputation, its marketing, product availability, after-purchase support, returns, customer service, and any other aspect of the consumer’s ownership experience comprise the total product.

References University of Toronto Economics: Output as a Function of a Single Input Writer Bio With degrees in Photography and Recorded Music Production, Scott spent over 20 years as an Operations Manager with Kodak before starting a second career as a freelance content creator specializing in business, accounting and tax topics.

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Explaining the Total Product Curve

Total Product

Explaining the Total Product Curve The total product (TP) curve graphically explains a firm’s total output in the short run. It plots total product as a function of the variable input, labor. Marginal product (MP) of labor is the change in output generated from adding one more unit of the variable input, labor.

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