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CA Foundation · Business Economics · Theory of Production and Cost

A workshop in Ludhiana has the following total product (TP) with labour: 1 worker = 8 units, 2 workers = 20 units, 3 workers = 33 units, 4 workers = 44 units. At which number of workers does the marginal product first begin to diminish?

Marginal product first diminishes at the 4th worker. The marginal products are 8, 12, 13 and 11 for workers one to four. They rise until the third worker and fall for the fourth, so diminishing returns begin there.

  1. AAfter the 1st worker, i.e. the 2nd worker's MP is lower
  2. BAt the 3rd worker
  3. CAt the 4th workerCorrect
  4. DAt the 2nd worker, where MP is at its highest

Explanation

MP of workers: 1st = 8, 2nd = 20-8 = 12, 3rd = 33-20 = 13, 4th = 44-33 = 11. MP rises up to the 3rd worker (13) and first falls at the 4th worker (11). Option 2 is wrong because MP of the 3rd worker (13) is higher than that of the 2nd (12).

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