This production function shows how much output the U.s. economy could produce at each level of employment (labor input), holding productivity and the capital stock constant at 2004 levels. Point A corresponds to actual 2004 output and employment. The marginal product of labor (M PN) at any point is measured as the slope of the line tangent to the production function at that point. The MPN is lower at higher levels of employment, reflecting diminishing marginal productivity of labor.
The production function relating output and labor looks generally the same as the production function relating output and capitaJ.5 As in the case of capital, increases in the number of workers raise output but do so at a diminishing rate. Thus the principle of diminishing marginal productivity also applies to labor, and for similar reasons: the greater the number of workers already using a fixed amount of capital and other inputs, the smaller the benefit (in terms of increased output) of adding even more workers. The marginal product of labor, or MPN, is the additional output produced by each additional unit of labor, Ll.Y / Ll.N. As with the marginal product of capital, for small increases in employment, the MPN can be measured by the slope of the line tangent to a production function that relates output and labor. In Fig. 3.3, when employment equals 30 million workers, the MPN equals the slope of the line tangent to the production function at point B; when employment is 90 million workers, the MPN is the slope of the line that touches the production function at point C. Because of the diminishing marginal productivity of labor, the slope of the production function relating output to labor is greater at B than at C, and the production function flattens from left to right.