The following formula is used to calculate the marginal product using the change in input and change in output of a product.
What is a marginal product?
Marginal product describes the relationship between the change in output with a related change in input of a produced good or service.
In other words, it describes how changing an input will change the output and presents that as a ratio to use in further formulas and analysis.
The following is a step by step guide to calculate a marginal product ratio.
- Determine the inputs and outputs to be analyzed. For this example, we are going to say the input is the quantity of raw materials and the output is quantity of goods produced.
- Next, determine the change in the input. After making a business decision, we decide to increase the raw material input by 50%.
- Next, determine the change in output. After analyzing further, it’s found the output changes by an equal 50%.
- Finally, determine the marginal product ratio. So, .50/.50 = 1. The marginal product is 1 which means there’s a direct 1:1 relationship between the input and output in this example.
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