Marginal Productivity and the Equimarginal Principle

This is a quite general principle which can be stated as follows:

Rule:

When the same product or service is being produced in two or more units of production, in order to get the maximum total output, resources should be allocated among the units of production in such a way that the marginal productivity of each resource is the same in each unit of production.

This example may also be a little clearer example of what we mean by “efficient allocation of resources.” In the example, we have a tiny economy consisting of one farmer and two plots of land. When the marginal productivities on the two plots are equal, this tiny economy has an “efficient allocation of resources.” Ofcourse, real economies are more complex but the principles governing the efficient allocation of resources are the same. This rule is called as the “Equimarginal Principle.” 

The idea is to make two things equal “at the margin.” In this case, one has to make the marginal productivity of labor equal to the two fields. It has many applications in economics. In more complicated cases, one

will have to generalize the rule carefully. In this example, for instance, you are allocating resources between two fields that produce the same output. When the different areas of production are producing different kinds of goods and services, it will be more complicated. But a version of the Equimarginal Principle will still apply.