Question

Briefly explain using a graph whether given statement is true or false. “Red Stone Creamery currently hires 5 workers. When it added a sixth worker, its output actually fell. This means that the sixth worker is not as skilled as the fifth worker.

Answer 1

False

For solving this question we need to understand the meaning of law of diminishing returns which says that as the output increased with the given number of labours then as more number of labour labour increase the output decreases

It can now increase only by having more human capital or better technology

So for the company Red stone creamery when it hires 5 workers it producing 6 unit of output(assume) but when it will add the 6thworker, the output will fall

Here we can not say that the sixth worker has less skill

Due to this law the output fell and there is need to change in human capital or technology

output 7 Law of 6 diminishing return 5th 6th Labors