CA Foundation · Business Economics · Theory of Production and Cost
A firm's total product with 5 workers is 100 units and with 6 workers is 108 units. What is the average product with 6 workers, and what does the relation between MP and AP tell us about the average product when the 6th worker joins?
Average product with six workers is 18 units, and it falls from 20. The sixth worker's marginal product is only 8 units, which is below the previous average of 20, so the new addition drags the average down.
- AAP = 18; AP falls because MP (8) is below the earlier AP (20)Correct
- BAP = 18; AP rises because MP (8) is positive
- CAP = 8; AP falls because MP is below 20
- DAP = 20; AP is unchanged because MP is positive
Explanation
AP at 5 workers = 100/5 = 20. AP at 6 workers = 108/6 = 18. MP of the 6th worker = 108 - 100 = 8, which is less than 20, so it pulls the average down. Positive MP alone does not make AP rise; MP must exceed AP.
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