Average product equals the units of output produced per unit of a factor of production while keeping other factors of production constant.
The higher the average product, the more productive a factor of production is and vice versa. Average product is different from average revenue product which equals the revenue earned per factor of production while keeping other factors constant.
|Average product =||Total Output in Units|
|Units of Factor of Production|
Sucrose Farms is engaged in production of sugar cane. The major factors of production in the business are land and labor. The farm has a land mass of 10 square kilometers and it employs 3 people each working 10 hours a day for 100 days . During the financial year 2012, they produced 120 tons of sugar cane. Calculate average product per unit of land and labor.
Average product per unit of land = 120 tons of total output/10 square kilometers of land = 12 tons per square kilometer.
This average product of 12 tons per square kilometer is when labor is constant at 3 people each working 10 hours a day. If we increase or decrease the number of workers or the number of hours each worker works per day, it will respectively increase and decrease the average total product per unit of land.
Average product per unit of labor = 120 tons of total output/3,000 hours of labor = 40 kilograms per labor hour.
Written by Obaidullah Jan, ACA, CFA