CMA Foundation · Fundamentals of Business Economics and Management · Means of Production
A firm's total output rises from 200 units to 260 units when workers increase from 10 to 15, with land and capital fixed. The firm's average product of labour changes from 20 to about 17.33 units. Which statement is correct?
The marginal product of the added workers is 12 units each (60 extra units from 5 workers). Because this is below the earlier average of 20, the average product falls to 17.33, which shows diminishing returns to a variable factor with fixed land and capital.
- AMarginal product of the added workers is 12 units per worker, below the initial average, so average product fallsCorrect
- BMarginal product of the added workers is 60 units per worker, so average product must rise
- CMarginal product is 17.33 units, equal to the new average
- DMarginal product is 20 units, equal to the old average
Explanation
Extra output is 260-200=60 for 5 extra workers, so marginal product is 12 per worker. Since 12 is below the average of 20, the average falls to 260/15=17.33. Option B wrongly uses total addition as per-worker marginal product.
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