FINAL GOODS AND SERVICES: Goods and services that are available for purchase by their ultimate or intended user with no plans for further physical transformation or as an input in the production of other goods that will be resold. Gross domestic product seeks to measure the market value of final goods. Final goods are purchased through product markets by the four basic macroeconomic sectors (household, business, government, and foreign) as consumption expenditures, investment expenditures, government purchases, and exports. Final goods, which are closely related to the term current production, should be contrasted with intermediate goods--goods (and services) that will be further processed before reaching their ultimate user.
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The quantity of total output produced per unit of a variable input, holding all other inputs fixed. Average product, usually abbreviated AP, is found by dividing total product by the quantity of the variable input. Average product, which occasionally goes by the alias average physical product (APP), is one of two measures derived from total product. The other is marginal product. Average product is the per unit production of a firm. Conceptually, it is simply the arithmetic mean of total product calculated for each variable input over a whole range of variable input quantities. Average product is generally considered less important than total product and marginal product in the analysis of short-run production.
The formula for specifying and calculating average product from total product is given as:
Average ProductionThe table at the right summarizes the hourly production by Waldo's TexMex Taco World of Super Deluxe TexMex Gargantuan Tacos (with sour cream and jalapeno peppers). The total product numbers presented can be used to derive the average product.
The column on the left is the variable input, specifically the number of workers employed by Waldo's TexMex Taco World, which ranges from 0 to 10. The column to the right is the total product, the total number of TexMex Gargantuan Tacos produced, which ranges from a low of 0 to a high of 125 before declining to 110. Keep in mind that the taco production from these workers depends on a given amount of fixed inputs, Waldo's TexMex Taco World restaurant and all of the capital that goes with it.
|Average Taco Product
Not yet shown in this table is average product. This deficiency can be easily remedied.
The remaining average product values can be derived in a similar manner. To reveal the entire column of average product values, click the [Others] button. Please feel free to spot check the math on a few of these numbers by dividing the total product by the quantity of the variable input.
- First, consider the average product for Waldo's TexMex Taco World workforce if Waldo employs only one worker. With one worker, total production is 20 Gargantuan Tacos each hour. Averaging this total production of 20 tacos over the variable input of one worker, gives an average product of 20 Gargantuan Tacos. Click the [One] button to display the average product for one worker.
- Now consider the average product if Waldo's employs two workers. In this case, the total hourly production is 50 Gargantuan Tacos. Dividing 50 tacos by two workers gives an average product of 25 Gargantuan Tacos. Click the [Two] button to display the average product for two workers.
- Consider one more calculation. If Waldo's employs three workers, the total hourly production increases to 75 Gargantuan Tacos. Dividing 75 tacos by three workers results in an average product of 25 Gargantuan Tacos. Click the [Three] button to display the average product for three workers.
An observation or three about this column of numbers is in order.
- First, average product increases for the first two workers, reaches a peak of 25 tacos per worker per hour with either two or three workers employed, then declines thereafter.
- Second, this decline in average product is indirectly caused by the law of diminishing marginal returns.
- Third, while it might not be obvious from this table, average product continues to decline as Waldo's workforce expands, but average product is NEVER negative. To have a negative average product, total product must be negative, and that just does not make sense.
The Average Product Curve
The average product curve is a graphical representation of the relation between average product and the variable input. The average product curve for Gargantuan Taco production is displayed to the right.
|Average Product Curve
The "general" slope of this curve is negative, with per unit output lower for larger workforces. However, the average product curve is actually "hump" shaped, with a positive slope giving way to a negative slope. Consistent with the numbers in the table, the curve reaches a peak of 25 Gargantuan Tacos at both 2 and 3 workers before the slope turns negative.
Total and MarginalTwo related product measures are total product and marginal product.
- Total Product: This is the total quantity of output produced by a firm for a given quantity of inputs. Total product is the foundation upon which the analysis of short-run production for a firm is based. It also provides the basis for calculating average product. If, for example, Waldo's TexMex Taco World has a staff of 5 that generates a total product of 110 tacos, then average product is 22 tacos.
- Marginal Product: This is the change in total product resulting from a change in the number of workers. Marginal product indicates how the total production of TexMex Gargantuan Tacos changes when an extra worker is hired or fired. For example, hiring a 5th worker means that Waldo's TexMex Taco World total product increases from 95 to 110 tacos. The addition of a 5th worker results in the production of an additional 15 TexMex Gargantuan Tacos.
AVERAGE PRODUCT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 3, 2024].
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