CA Foundation · Business Economics · Theory of Production and Cost
A tailoring unit in Ludhiana adds workers to a fixed number of sewing machines. The total product (TP) for 1, 2, 3, 4 and 5 workers is 8, 20, 36, 48 and 55 units respectively. At which worker does the law of diminishing marginal returns first begin to operate?
Diminishing marginal returns first begin at the 4th worker. Marginal products are 8, 12, 16, 12 and 7, so marginal product peaks at the 3rd worker with 16 units and falls for the first time when the 4th worker adds only 12 units.
- A2nd worker
- B3rd worker
- C4th workerCorrect
- D5th worker
Explanation
MP of workers 1 to 5 = 8, 12, 16, 12, 7. MP rises up to the 3rd worker (16) and first falls at the 4th worker (12). Choosing the 3rd worker is wrong because MP is at its maximum there, not yet falling.
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