Why does the Average Physical Product curve slope downwards so soon?
The Average Physical Product (APP) curve represents the relationship between the quantity of inputs used in the production process and the average amount of output produced. It is important to note that the APP curve is derived from the concept of the Law of Diminishing Returns.
The Law of Diminishing Returns states that as more and more units of a variable input (e.g., labor) are added to a fixed input (e.g., capital), the additional output produced by each additional unit of the variable input will eventually diminish.
To understand why the APP curve slopes downwards, we need to look at its underlying factors:
1. Fixed input: The APP curve assumes that at least one input is fixed, meaning it remains constant while the quantity of the other variable input changes. For example, if we consider the production of goods, the amount of capital (e.g., machinery, equipment) may be fixed, while the amount of labor (variable input) can be changed.
2. Variable input: The variable input, usually labor, is gradually increased while the fixed input remains the same. Initially, as more units of the variable input are added, the total output increases at an increasing rate. This is because the additional inputs are utilizing the fixed input more efficiently, leading to higher productivity.
However, after a certain point, adding more units of the variable input begins to have less impact on overall productivity. This is because the fixed input becomes a limiting factor. The fixed input, such as a fixed amount of capital, cannot be fully utilized by an increasing number of workers, leading to diminishing returns. As a result, the average amount of output produced per unit of the variable input starts to decline, causing the APP curve to slope downwards.
To calculate the APP at any given level of input, you divide the total output by the quantity of the variable input used. Specifically, APP = Total Output / Quantity of Variable Input.
By plotting these values, you can observe the downward slope of the APP curve, indicating the diminishing returns and reduced average productivity as more units of the variable input are added.