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Chapter 7. Question 16

Question 16
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A.This question asks you to calculate the Marginal Product (MP) and Average Product (AP) and then analyze your findings. First, calculate the MP.

Labor Output Marginal Product
0 0
1 7
2 15
3 25
4 33
5 40
6 45
Correct! The MP is the change in output that results from a change in labor input. It is calculated by dividing the change in output by the change in labor.
Incorrect. The MP is the change in output that results from a change in labor input (MP= ∆Q/∆L). It is calculated by dividing the change in output by the change in labor. Note that in this example, the change in labor is always 1. The numerator is calculated by finding the difference between successive levels of Output.

Now, calculate the Average Product. Round answers to two decimal places, if necessary.

Labor Output Average Product
0 0
1 7
2 15
3 25
4 33
5 40
6 45
Correct! The AP is calculated by dividing total output by the number of labor units input.
Incorrect. The AP or output per worker is found by dividing total output by the number of workers employed to produce that output (AP= Q/L).

B. Over how many workers is the firm enjoying increasing returns?

The firm enjoys increasing returns between and workers.

Correct! The MP increases from 0 workers to 3 workers.
Incorrect. The MP increases from 0 workers to 3 workers.

С. At what number of workers do diminishing returns set in? worker.

Correct! The MP decreases when the 4th worker is hired.
Incorrect. Diminishing returns set in when the MP decreases. This occurs when the 4th worker is hired.

D. Are negative returns shown in the table?

A.
B.
Correct! There are no negative returns in this example.
Incorrect. There are no negative returns in this example. Negative returns occur when the MP is negative.