CA Foundation · Business Economics · Theory of Production and Cost
A firm in Rajkot finds that with 6 workers the average product of labour is 15 units. When a seventh worker is hired, the average product rises to 16 units. What is the marginal product of the seventh worker?
The marginal product of the seventh worker is 22 units. Total product with six workers is 90 and with seven workers is 112, so the extra output is 22. This exceeds the average product, which is why the average rises.
- A16 units
- B22 unitsCorrect
- C15 units
- D7 units
Explanation
TP with 6 workers = 6 x 15 = 90. TP with 7 workers = 7 x 16 = 112. MP of the seventh worker = 112 - 90 = 22 units. Choosing 16 mistakes the new AP for MP. Since MP (22) is above AP, AP rises, which is consistent.
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