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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production

A farmer in Punjab cultivates a fixed plot of land and adds labourers one at a time. Total product (in quintals) is: 1 labourer 20; 2 labourers 50; 3 labourers 72; 4 labourers 88; 5 labourers 98. With which labourer does the marginal product first begin to fall?

Marginal product starts to fall with the third labourer. The marginal products are 20, 30, 22, 16 and 10 quintals. It rises up to the second labourer at 30, then drops to 22 when the third is added, showing the onset of diminishing returns.

  1. ASecond labourer
  2. BThird labourerCorrect
  3. CFourth labourer
  4. DFifth labourer

Explanation

Marginal products are 20, 30, 22, 16, 10. MP rises from 20 to 30 at the second labourer, then falls to 22 at the third. So diminishing marginal product starts with the third labourer. Choosing the second would ignore that MP is still rising there (30 > 20).

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