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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

A small workshop in Ludhiana keeps its machines fixed and adds workers one at a time. Total product (units) is: 1 worker = 10, 2 workers = 24, 3 workers = 36, 4 workers = 44, 5 workers = 48. Diminishing marginal returns to the variable factor first appear with which worker?

Diminishing marginal returns first appear with the 3rd worker. Marginal products are 10, 14, 12, 8 and 4, so marginal product peaks at the 2nd worker and begins falling at the 3rd, which is where the law of diminishing returns starts operating.

  1. AThe 2nd worker
  2. BThe 3rd workerCorrect
  3. CThe 4th worker
  4. DThe 5th worker

Explanation

Marginal products are: 1st = 10, 2nd = 14, 3rd = 12, 4th = 8, 5th = 4. MP rises up to the 2nd worker (14) and first falls at the 3rd worker (12). Choosing the 2nd confuses the point of maximum MP with the start of decline.

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