CA Foundation · Business Economics · Theory of Production and Cost
A farmer in Punjab applies different numbers of labourers to a fixed plot. Total product (in quintals) is: 1 labourer = 8, 2 = 20, 3 = 30, 4 = 36, 5 = 40. At which labourer does diminishing marginal returns first set in?
Diminishing marginal returns first appear at the 3rd labourer. Marginal products are 8, 12, 10, 6 and 4, so marginal product peaks at the 2nd labourer and first falls at the 3rd, when it drops from 12 to 10 quintals.
- A2nd labourer
- B3rd labourerCorrect
- C4th labourer
- D5th labourer
Explanation
Marginal product: 1st = 8, 2nd = 12, 3rd = 10, 4th = 6, 5th = 4. MP rises until the 2nd labourer (12) and first falls at the 3rd (10). Choosing the 2nd confuses the point of maximum MP with the start of decline.
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