The total product curve is a graphical representation of the output produced by a firm as it increases the quantity of one input, while keeping other inputs constant. It typically shows the relationship between the quantity of a variable input (like labor) and the total output (product) generated.
Initially, the total product curve starts at the origin (0,0) and increases as more of the variable input is added. The shape of the curve can generally be divided into three main segments:
-
Increasing Returns to Scale: In the initial stages, as more units of input are added, total product increases at an increasing rate. This might be due to factors such as better specialization and efficiency gained in production.
-
Diminishing Returns to Scale: After reaching a certain point, the curve will start to increase at a decreasing rate. This is influenced by the principle of diminishing marginal returns, where adding more of one input (while keeping others fixed) results in smaller increases in output.
-
Negative Returns: If the input continues to be increased beyond a certain point, total product may begin to decline due to inefficiencies and overcrowding of the fixed inputs.
Thus, the total product curve illustrates the relationship between input usage and output production, initially showing increasing returns, followed by diminishing returns, and potentially leading to negative returns as input levels continue to rise.