Why does the Average Physical Product curve slope downwards so soon?
The Average Physical Product (APP) curve typically slopes downwards because of the principle of diminishing marginal returns. This principle states that as more and more units of a variable input (such as labor) are added to a fixed input (such as capital), the additional output from each additional unit of the variable input will start to decline.
To understand why the APP curve slopes downwards, you can follow these steps:
1. Start with the concept of the Total Physical Product (TPP) curve: The TPP curve shows the relationship between the quantity of labor (i.e., the variable input) and the total output produced. Initially, as more labor is added, the total output increases at an increasing rate, due to the division of labor and specialization.
2. Calculate the APP: The APP is found by dividing the total output (TPP) by the quantity of labor. For example, if the TPP is 100 units of output and the quantity of labor is 10, then the APP would be 100/10 = 10 units of output per unit of labor.
3. Observe the pattern of the APP curve: At the beginning, when relatively small amounts of labor are added, the APP tends to increase. This is because the fixed input (capital) is being utilized more effectively, and workers can specialize in tasks where they have a comparative advantage. This leads to higher productivity and an increasing APP.
4. Notice the turning point: However, as more units of labor are added, the APP eventually starts to decline. This occurs due to diminishing marginal returns. The fixed input, such as capital, becomes less able to absorb the additional units of the variable input. For example, if a factory has limited space or a limited number of machines, the productivity of each additional worker may decrease as the fixed input becomes overburdened. As a result, the additional output contributed by each additional worker is not as significant, causing the APP to slope downwards.
In summary, the downward slope of the Average Physical Product (APP) curve is a result of the principle of diminishing marginal returns, where the addition of extra units of a variable input (such as labor) eventually leads to a decline in the additional output that can be obtained from each additional unit of the input.