3 Explain the relationship between marginal product and average product. Figure 10.3 illustrates Fashion First’s average product of labour, AP, and the relationship between the average and marginal product. Points B to F on the average product curve correspond to those same rows in Table 10.1 .

Average product increases from 1 to 2 workers (its maximum value is at point C ) but then decreases as yet more workers are employed. Also, average product is largest when average product and marginal product are equal. That is, the marginal product curve cuts the average product curve at the point of maximum average product. For the number of workers at which the marginal product exceeds average product, average product is increasing. For the number of workers at which marginal product is less than average product, average product is decreasing.

The relationship between the average product and marginal product curves is a general feature of the relationship between the average and marginal values of any variable. Let’s look at a familiar example.