Marginal Product of Labor Formula

Formula to Calculate Marginal Product of Labor (MPL)

Marginal Product of Labor Formula is the formula that calculates the change in the level of the output of the company when there is the addition of a new employee in the company and according to the formula Marginal Product of Labor is calculated by dividing change in the value of the total product by the change in the labor.

The formula for calculating the Marginal Product of labor (MPL) is represented as below

Marginal Product of Labor = Δ TP / Δ L
Marginal-Product-of-Labor-Formula

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For eg:
Source: Marginal Product of Labor Formula (wallstreetmojo.com)

Where,

  • Δ TP is changed in total product or output
  •  Δ L is the change in labor

It depicts the additional output when 1 unit of labor or additional new employee hired or added to the firm. Hence, its calculation is quite simple that is we just need to divide the difference of additional output by the difference of additional unit of labor.

Examples

You can download this Marginal Product of Labor Formula Excel Template here – Marginal Product of Labor Formula Excel Template

Example #1

Company Beta has currently 3 workers and the units produced by them is 101. A company decides to add another worker and it was noticed that the units produced went up to 110. Based on the above information you are required to calculate the Marginal Product of labor.

Solution

Use the following data for the calculation of the MPL.

  • Existing Units Produced; 101.00
  • Existing Labor: 3.00
  • New total Units Produced: 110.00
  • New total Labor: 4.00

Change in Level of Output

Marginal Product of Labor Formula Example 1.1png
  • = 110.00 – 101.00
  • Change in Level of Output = 9.00

Change in Level of Labor

Marginal Product of Labor Formula Example 1.2
  • = 4.00-3.00
  • Change in Level of Labor = 1.00

Therefore, the calculation of the marginal product of labor is as follows,

 Example 1.3

=9.00/1.00

MPL will be –

Marginal Product of Labor Formula Example 1.4

Therefore, the MPL of the product for this company is 9.

Example #2

Kanza Inc. is a manufacturing product called “DFGH” which requires a lot of labor efforts. Recently when the management of the company went to a profit margin of the product and realize that the product has suffered declining profits. The management has asked the production department to look into the same. On analyzing its cost, it was noticed that the labor costThe Labor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more was the driving force for the same. The monthly production and the required labor for the same are given below for the past 6 months.

MonthProduction OutputLabor Required
Jan34000000.00100.00
Feb35000000.00110.00
Mar39500000.00120.00
Apr41320000.00130.00
May40906800.00140.00
Jun40497732.00150.00

The management is not sure whether the production is required to be increased to boost profits or there is a cut required in the cost.

 You are required to assess the situation and advise management as to what should be done?

Solution:

We are given monthly production details and labor required for the same.

We shall first calculate the incremental production and incremental labor required per below:

Incremental Output

Example 2.1

Incremental Labor

 Example 2.2

Now, we can use the below formula to calculate the MPL:

Therefore, calculation of marginal product of labor for Feb Month is as follows,

Marginal Product of Labor Formula Example 2.3

=1000000.00/10.00

MPL for Feb Month will be –

Marginal Product of Labor Formula Example 2.4
  • MPL= 100000.00

Similarly, we can calculate the marginal product of labor for the remaining month

Example 2.5

As can be seen from the above table, the MPL of the product is started declining from the month of May when 140 employees were hired to work upon production. Hence, it appears that labor after hiring 130 employees is actually not helping in increasing the production as expected and since this product ‘s main cost is labor cost and hence this could be one of the reasons for the firm’s declining profit. Hence, it is advisable for the firm to review its labor process and take decisions accordingly.

Example #3

The details of production and labor are given below. You are required to calculate the Marginal Product of Labor and show in the graph the way it depicts declining MPL.

Solution

Production OutputLabor Required
1133.335.00
1166.676.00
1316.677.00
1377.338.00
1363.569.00
1349.9210.00

We are given monthly production details and labor required for the same.

We shall first calculate the incremental production and incremental labor required per below

Incremental Output

 Example 3.1

Incremental Labor

marginal product of labor formula Example 3.2

Therefore, the calculation of the marginal product of labor is as follows,

 Example 3.3

=33.33/1.00

marginal product of labor formula Example 3.4
  • MPL will be = 33.33

 Similarly, we can calculate the MPL for the remaining.

Example 3.5
Marginal Product of Labor Formula Example 4

It can be seen from the above graph that as a number of labor increases, total production increases but also the MPL declines.

Marginal Product of Labor Calculator

You can use this marginal product of labor calculator

Change in Total Product or Output
Change in Labor
Marginal Product of Labor Formula
 

Marginal Product of Labor Formula =
Change in Total Product or Output
=
Change in Labor
0
= 0
0

Relevance and Uses

This is a vital concept to the managers of the company as it shall measure the optimal amount of labor which should be employed by them and that can maximize their profits and productivity. Hence, it would aid them in making a decision whether the firm should employee new hires or if by employing additional employees is cost worthy.

Every firm shall reach a point where employing a new person will either not make any change in the level of output or it might even decrease the overall output for the firm. At the end of the day, there would be too many persons who would be trying to do too few tasks and as a consequence, the output will suffer.

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