Question

Production with One Variable Input

1. The following table provides data related to the production technology of a firm that use only two inputs – labor and capital – to produce output. In the short-run, the firm’s capital stock is fixed.

Amount of labor input	Amount of output	Amount of capital input	Average product of labor	Marginal product of labor
0	0	10
1	15	10
2	40	10
3	70	10
4	95	10
5	110	10
6	120	10
7	128	10
8	133	10

1. Complete the table above by filling in the missing values.
2. What trends do you notice in the amount of output (Total Product), average product of labor, and the marginal product of labor as the labor input increases?
3. Does this firm’s production technology exhibit diminishing marginal returns to labor? Justify/explain your answer.

Answer 1

a.

Amount of labor input	Amount of output	Amount of capital input	Average product of labor	Marginal product of labor
0	0	10
1	15	10	15.00	15
2	40	10	20.00	25
3	70	10	23.33	30
4	95	10	23.75	25
5	110	10	22.00	15
6	120	10	20.00	10
7	128	10	18.29	8
8	133	10	16.63	5

b. With the increase in labor, the amount of output increases at a decreasing rate, average product reaches a maximum and starts to decrease, marginal product too increases initially and then decreases with the increase in labor

c. Yes, as we can see that the marginal product decreases with the increase in labor the firms production technology exhibits diminishing marginal returns to labor