Explain how the marginal product of labour and the average product of labour change as the quantity of labour employed increases (a) initially and (b) eventually
Marginal product of labor is the extra units of output produced with increase in the amount of labor units. Normally, when all other factors of production are held constant, the marginal product of labor should increase with the increase of labor units, in what is known as the increase in marginal returns. This will go on until either capital or materials begin to reduce, and the marginal product of labor would begin to reduce at this point regardless of any increase in labor units, in what is known as diminishing marginal returns. Any further increases in labor will result in negative marginal returns in what is known as negative marginal returns.
The average product of labor refers to the output divided by the units of labor. This would essentially follow the same pattern as the marginal product of labor but with some variations, because the average product of labor shows the effect of aspects such as specialization. It is expected that with increase in labor units the older labor units will have gained more experience and expertise that would improve their efficiency and in turn their output. Thus even though the marginal product of labor would reach an optimum point and begin to drop regardless of increased labor units, the average product of labor would continue to increase until it reaches the point of the marginal product, and it is then at this point, that the average product of labor would begin to drop as well.
It is important to note that this is possible because the average product is normally lower than the marginal product in the starting period of production.