Final answer:
When the output of an additional variable input exceeds the average contribution of variable inputs used, the average product increases, indicating increasing productivity up to the point of diminishing marginal returns.
Step-by-step explanation:
The question is related to the concept of marginal and average product in the context of production costs and variable inputs. When the contribution to output of an additional unit of a variable input exceeds the average contribution of all variable inputs used, it leads to an increase in the average product. This increase continues until the point where additional units contribute less than the average, indicating diminishing marginal productivity.
Using the given example of barbers, the marginal product first increases as more barbers are added, output rises more than proportionately; but then the marginal product begins to decline, demonstrating the diminishing marginal productivity. This concept is pivotal in understanding how inputs translate into outputs in the production process and the associated costs. When the marginal gain from an additional unit exceeds the average, it lifts the overall average contribution.