Question

1. Suppose that a firm is producing in the short run when machine number is fixed. It knows that as the number of workers used in the production process increases, the number of output changes according to the following table:

   1. # of workers	# of output
      0	0
      1	10
      2	17
      3	22

      # of workers	# of output
      4	25
      5	26
      6	25
      7	23

      1. Calculate the marginal and average products of labor for each additional worker. You can create a new table by adding two more columns for MPL and APL.

   2. Does this production function exhibit diminishing returns to labor? Explain.

   3. Explain intuitively what might cause the marginal product of labor to become negative.

Answer 1

No. of workers	No. of output	MPL	APL
0	0	0	0
1	10	10	10
2	17	7	8.5
3	22	5	7.34
4	25	3	8.34
5	26	1	5.2
6	25	-1	4.17
7	23	-2	3.29

MPL= ∆Q/∆L (change in output/change in labour).

APL= TQ/TL (total output/total labour).

As more and more labour is added to a given amount of capital, after a state the addition made to the total output by an additional unit of labour diminishes after a stage. This is diminishing returns to labour. From the initial stage of production, the marginal product of labour diminishes continuously. Hence the diminishing returns operate in this production function.

The marginal product of labour becomes negative due to the inefficiency arising out of congestion of workers. The contribution of some workers become negligible or even reduces the productivity of others.