AVERAGE PRODUCT Meaning and
Definition
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The term "average product" refers to a concept used in economics and business to measure the efficiency and productivity of a specific factor of production in relation to the output it generates. Average product is calculated by dividing the total output or quantity produced by a specific factor of production, such as labor or capital, by the number of units of that factor used.
In simplest terms, average product represents the average contribution made by each unit of a factor of production to the total output or quantity produced. It is a key measure to assess the efficiency and effectiveness of a particular factor in the production process.
The calculation of average product is crucial for businesses and economists as it helps in making informed decisions about resource allocation and optimization. By analyzing the average product of different inputs, companies can determine the most productive and efficient combination of factors to achieve maximum output. For example, if the average product of labor is higher than that of capital, a rational business would allocate more resources towards labor to increase production efficiency.
Moreover, average product plays an essential role in understanding the concept of diminishing returns. As more units of a factor are added while keeping others constant, the average product tends to decline, reflecting that the additional units contribute less to the overall output. This understanding helps businesses to optimize the utilization of resources and increase productivity.
Etymology of AVERAGE PRODUCT
The word "average" has its roots in the late Middle English word "aver", which means "damages or injury suffered at sea". This term later evolved to "average" in the early 17th century, referring to the distribution of costs or losses among a number of stakeholders, particularly in maritime commerce.
The word "product" comes from the Latin "productus", the past participle of the verb "producere", which means "to bring forth or produce". It entered the English language in the late 15th century, signifying "something produced".
When these two words are combined, "average product" refers to the average amount of output or product produced per unit of input in the field of economics.
