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CA Foundation · Business Economics · Theory of Production and Cost

On a farm, Ramesh adds workers to a fixed plot of land. Total product for 1, 2, 3, 4 and 5 workers is 20, 50, 90, 120 and 140 quintals respectively. Marginal product first starts to diminish when the number of workers rises to:

Marginal product is 20, 30, 40, 30 and 20 for workers one to five. It peaks at the third worker and first falls at the fourth worker, so diminishing marginal returns begin when the fourth worker is employed.

  1. A2nd worker
  2. B3rd worker
  3. C4th workerCorrect
  4. D5th worker

Explanation

MP of workers 1 to 5 = 20, 30, 40, 30, 20. MP rises until the 3rd worker (40) and falls for the 4th worker (30). So diminishing returns begin with the 4th worker. Choosing the 3rd worker mistakes the point of maximum MP for the start of decline.

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