The ultimate product of labor is what is its value equal to?

Whatever the firm does, it works for the result in any case. And this result is the output produced. The product of production can be either real or immaterial. At the machine-building plant, machines are produced as a product of production, candies at the candy factory, the number of patients served in the medical field, and the number of graduates at the university.

Various resources are used in the production of products. It's money, equipment, land, fossils, people's labor. Labor is also a product. It is divided into general, medium and marginal. The ultimate product of labor is an additional expansion of production, resulting from its increase by one unit. The remaining factors of production remain unchanged.

How does the marginal product of labor develop?

The volume of products produced by the company, of course, depends directly on the number of employees. The average product of labor shows the efficiency (productivity) of the work of the collective as a whole. For example, 24 masters made 10 tables per hour, and 12 masters of another salon did the same production for the same period of time. Hence, their work is more effective.

What actually reflects the marginal product of labor?

The marginal product of labor is equal to the increase in the volume of output divided by a variable resource. In other words, this indicator shows how much productivity is increased by using a new variable resource for the same unit of time. For example, a new resource may be a new workforce, equipment or technology.

How many employees do you hire

For any company striving for successful work and development, it is important to determine how many people are working for the most effective work. It would seem that the more workers, the higher the output of products? By no means.

When the average marginal product of labor reaches its maximum, it becomes equal to the value of the marginal product. And this means that an increase in the number of employees will lead to a decline in production. Determine this equation can be a special calculation, which takes into account at least two variables of the resource - labor and capital.

What does wages depend on?

With a fair and correct calculation, the head of the company can determine the highest possible payment for the work of hired employees while maintaining the growth of the profit of their enterprise. Wages and the marginal product of labor are interdependent concepts. When the enterprise maintains an optimal ratio of variable resources and the number of employed manpower, then productivity increases. Accordingly, this leads to a stable wage. If the enterprise does not have enough variable resources (for example, the same amount of capital invested in production), then the attraction of new units of labor will eventually lead to a diminishing productivity, which subsequently affects the wages of the staff as a whole.

Everything in close connection with the formulas and calculations

Considering that, the marginal product of labor is an additional product produced by attracting an additional labor unit, it is also necessary to take care of investing additional capital in production. A simple example: if a firm invests in the purchase of 100 tons of meat for the production of sausages, and 100 employees of the company produce products, then with a staff increase of 50 additional jobs, the firm will reduce its profit by having to pay additional wages to new employees.

And the quantity of output is the same. It turns out, with an increase in the number of employees, it is necessary to increase purchases of raw materials. Therefore, increase the invested capital. But so that the marginal product of labor and capital invested in production should have the proper ratio. That is, the additional amount of output should bring the company's revenue exceeding the invested capital expenditure.

Interesting fact

Of course, any employee dreams of getting more wages at work. Money is needed primarily to meet material needs. Working more, a person gets more income. This is ideal. But over time, when the income increases so much that it covers all the basic needs, there comes a period when the employee gives preference to leisure, and not to work. And no longer strives for greater productivity in the performance of their duties. Thus, with the growth of wages, the income effect is in conflict with the substitution effect.

Not at a loss

Determining the optimal amount of the employed labor resource, it is worth considering all the available indicators. This is the number of employees and the total costs, marginal costs, and overall productivity. Taking on a new employee, the head of the company looks at how much the revenue from his work is commensurate with the expenses that are inevitable with the necessity of his hiring.

And then there are such concepts as the marginal product of labor in monetary terms and the marginal product of labor in physical terms. First of all, labor costs are taken into account. This is the cost for the enterprise. And this salary should be competitive. Otherwise, good employees will look for other firms, where their work will be appreciated. At the same time, the head of the company has no right to fix a payment for labor exceeding the revenue that brings the work of the worker, or equal to it.

Features and necessity of modernization

Until the company's profits exceed the cost of labor, the company manager can invite new employees to work and receive additional profit. The indicator of the marginal product of labor will grow. But there is another way: without expanding the staff, the firm invests additional expenses in the modernization of production.

By renewing the equipment, thereby increasing labor productivity, the firm provides itself with a profit growth. The marginal product of labor in terms of money shows how much the total income of the firm has grown with the use of the same work units with the use of advanced modern equipment. With the correct calculation, the equipment costs will pay off within a certain period of time and will begin to bring a net profit. And it is more profitable than attracting new employees, whose costs remain unchanged or even grow.

Ratio of labor to income of capital

So, the ultimate product of labor is Additional product. It is obtained using additional work units. And the marginal product of capital is the additional goods and services received as a result of additional invested money. And the company is interested in purchasing new technologies, while the marginal product does not equal the real price of capital. The company will receive economic profit, when it pays for all the stages of production, there will also remain "money from above." If you look more broadly, the national income as a whole is then divided into the income of workers, the income of the owners of capital and the economic profit.

Interesting fact

One of the American senators - Paul Douglas - in 1927 thought about a strange phenomenon. The indicator of the national income does not change for years, working and businessmen equally enjoy the results of increased production and the progressing economy. The senator wanted to know the reason for the persistence of the shares of the factors of production and turned to the well-known mathematician Charles Cobb for calculations. This is how the famous Cobb-Douglas production function was born, which confirms that the ratio of labor to the income of capital is invariable. And the proportions of factors of production depend only on the proportion of labor in income, but do not depend on the number of factors themselves and the level of development of the industrial industry.

Flexibility of the production process

A competent leader will always find the perfect combination of production factors to increase profit and reduce the costs of the enterprise. Recall that the marginal product of labor is closely related to the amount of investment used. With the growth of output goods and services, the marginal product will grow, and vice versa - with a decrease in output, it also falls.

It is not enough to increase the number of services and goods produced. It is more important that these goods are in demand and realized. The value of the marginal product of labor is equal to the income from the marginal product of labor for any volume of the resource used. Search and find markets for the sale of goods, be able to negotiate and introduce competitive goods and services is the task of the head of the firm and his assistants.

Waning performance

There is such a thing as the "law of diminishing productivity". He was brought to the rank of "law", because it is characteristic of all industries without exception. That is, this is what happens: a gradual increase in any of the factors of production per unit at first brings profit, but then from a certain point begins to decrease. Thus, first the growth of the marginal product of labor is observed, and then this quantity is reduced. Why is this happening?

At a time when labor costs are low, and capital is still unchanged, the head of the firm decides to increase labor units. And due to this, the profit increases. But when there are a lot of workers, and the invested capital remains the same, some of the employees work ineffectively, and then the profit of the enterprise falls.

A simple example: 10 people work on potato harvesting. But then the eleventh worker comes, but the volume of production with his arrival does not change, since the land plot is the same, the crop is almost the same. In this case, as a rule, without reducing the staff of employees, the firm introduces technological improvements, and the output is growing again. That is, on the same land, you can grow a richer harvest using the latest technology. Then the labor costs of the eleventh employee will be justified by the company's increased profit.

Work only with profit

So, the marginal productivity of labor and the marginal product of labor are interrelated concepts. And they mean an increase in the volume of production due to the use of an additional unit of labor. The head of the company takes into account all factors of production when drawing up short-term and long-term plans. He tries to flexibly approach the improvement of production processes, observing the dynamics of all indicators.

The recruitment of new employees will also occur gradually, as will the increase in invested capital, if the possibilities for reducing production costs have been exhausted. And the main indicator of the right decisions of the head of the firm and his assistants, managers, is the growth of the company's profit. And since the marginal product of labor is, in fact, profit, it is this indicator that is the main one.