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(6 marks) The table below shows the production information of a plastic toy manufacturing factory: Units...

(6 marks) The table below shows the production information of a plastic toy manufacturing factory: Units of machine Units of labor Total Output level 5 10 45 5 11 52 5 12 X 5 13 Y a. Suppose the factory is facing the law of diminishing marginal product. Suggest a pair of plausible values for X and Y in the table. (2 marks) b. What is the implication of the diminishing marginal product of this factory on its marginal cost? (1 mark) c. Explain whether the following statement is true or false: “A firm should stop further expanding its output when the marginal cost starts to rise.”

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Answer #1

Answer:-

Units of machine

Units of labor

Total Output level

Mraginal Product of labour

Average Product

5

10

45

0

4.50

5

11

52

7

4.73

5

12

58

6

4.83

5

13

64

6

4.92

a) The law of diminishing marginal returns states that when an advantage is gained in a factor of production, the marginal productivity will typically diminish as production increases. This means that the cost advantage usually diminishes for each additional unit of output produced.

b) True

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