CA Foundation · Business Economics · Theory of Production and Cost
A firm's marginal product (MP) of labour is 30, 26, 22, 18, 14 units for the 1st to 5th workers respectively. Which statement is correct?
Total product with five workers is 110 units, and average product falls continuously from 30 to 22. Because each worker's marginal product is below the existing average, the average is pulled down at every step, even though total product keeps rising.
- ATP is 110 units with 5 workers and AP falls from the first worker onwardCorrect
- BTP is 110 units with 5 workers and AP rises throughout
- CTP is 100 units with 5 workers and AP falls from the first worker onward
- DTP is 110 units with 5 workers and AP is constant
Explanation
TP = 30+26+22+18+14 = 110. Cumulative TP is 30, 56, 78, 96, 110, so AP is 30, 28, 26, 24, 22. AP falls at every step because MP is always below the previous AP. The TP of 100 comes from an addition error. AP cannot rise or stay constant, as MP is below AP.
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