The Production Function The production function is a graph or figure that shows how a change in one production variable affects total output. Production can be analyzed in terms of short- run or long-run relationships between inputs and outputs. Marginal product is the extra output or change in total product caused by adding one more unit of input.

Stages of Production Marginal product changes as more workers are added. In Stage I of the production function, the marginal product increases with each additional worker. Stage II of the production function operates on the principle of diminishing returns; marginal products are still positive, but decrease steadily. In Stage III of the production function, the company has hired too many workers, and they interfere with one another and with production, causing marginal product to become negative.