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IAI Actuarial Core Principles · Business Economics · Production, costs, revenue and profit in price and output decisions

A Mumbai call-centre firm hires extra agents with its building fixed. Total output is 40 calls per hour with 4 agents, 50 with 5 agents and 58 with 6 agents. What are the marginal product of the 6th agent and the average product at 6 agents (to two decimals)?

The marginal product of the sixth agent is 8 calls (58 minus 50) and the average product is 9.67 calls (58 divided by 6). Marginal product has fallen from 10 to 8, consistent with diminishing marginal returns to the variable input.

  1. AMP = 8; AP = 9.67Correct
  2. BMP = 58; AP = 9.67
  3. CMP = 8; AP = 8.00
  4. DMP = 9.67; AP = 8
  5. MP = 10; AP = 9.67

Explanation

MP of the 6th agent = 58 - 50 = 8. AP = 58/6 = 9.67. The MP of 8 is below the earlier MP of 10 (from 40 to 50), showing diminishing marginal returns. Using 8 as the average confuses marginal with average.

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