Marginal Product of Labor

See: Marginal Product of Capital.

The marginal product of labor, often seen in shorthand as MPL, is the change in output as the result of a change in the input of labor.

If you owned a microwavable slipper business (it’s a thing) and asked yourself, “What’s my marginal product of labor?”, you’re asking yourself, “If I hire one more employee, how many more microwavable slippers does that get me? What if I hired two, or three? How many microwavable slippers then?”

Usually, the marginal product of labor isn’t linear, but is decreasing. Yep, the law of diminishing marginal returns is back again, like the Wicked Witch of the West. Hiring one more worker might yield 20 more microwavable slippers, while one more on top of that (so adding two new workers total) will get you 15 more, and hiring three will get you an additional 10.

Eventually, it’ll make sense to stop hiring people. There are only so many workers your microwavable slipper factory can hold. Time to open up another shop, perhaps? Or maybe also get into the microwave business...