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Chapter 7: Q40 (page 185)

Return to Figure 7.7. What is the marginal gain in output from increasing the number of barbers from 4 to 5 and from 5 to 6? Does it continue the pattern of diminishing marginal returns?

Short Answer

Expert verified

Marginal Output from 4th to 5th, 5th to 6th barber = 8 , 4 respectively.

Yes, The diminishing marginal return continues.

Step by step solution

01

Marginal Gain Concept 

Marginal Product is change in Total Product, when an additional variable factor is hired.

MP = TP n - TP n-1 , ie the difference between TP at n & (n-1) th level of output.

02

Numerical Solution 

  • MP from 4 to 5 barbers

= TP (ie quantity) from 5 barbers - TP (quantity) from 4 barbers

= 80 - 72 = 8

  • MP from 5 to 6 barbers

= TP (ie quantity) from 6 barbers - TP (quantity) from 5 barbers

= 84 - 80 = 4

03

Diminishing Marginal Returns : Explanation 

As evident from MP at 5th and 6th unit, MP has fallen from 8 to 4.

This denotes the stage of Diminishing marginal returns.

The pattern continues, as MPAT 8th unit = TP at 8 - TP at 7 = 82 - 84 = -2 , which is further lower than previous MP.

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