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CA Foundation · Business Economics · Theory of Production and Cost

A bakery in Pune employs labour with the following total product (TP) schedule: 1 worker = 10 units, 2 workers = 24 units, 3 workers = 36 units, 4 workers = 44 units. At which worker does marginal product (MP) begin to diminish?

Marginal product begins to diminish at the third worker. Marginal products are 10, 14, 12 and 8 for the first to fourth workers. The value rises up to the second worker at 14 and first falls to 12 with the third worker, so diminishing returns start there.

  1. AThe second worker
  2. BThe third workerCorrect
  3. CThe fourth worker
  4. DThe first worker

Explanation

MP of the 1st worker is 10, of the 2nd is 24 − 10 = 14, of the 3rd is 36 − 24 = 12, and of the 4th is 44 − 36 = 8. MP rises from 10 to 14 and then first falls at the third worker (12). Option A is wrong because MP is at its peak, not falling, at the second worker.

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