Question

Q9

9. (6 marks) The table below shows the production information of a plastic toy manufacturing factory: Units of machine Units of labor Total Output level 10 45 5 12 13 Y 11 5 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) What is the implication of the diminishing marginal product of this factory on its marginal cost? (1 mark) Explain whether the following statement is true or false: "A firm should stop further expanding its output when the marginal cost starts to rise." (3 marks)

Answer 1

Units I Laboul Totalowow 10 45 52 X-57 is bh & 1 13 C 4 = 60 Implication of Diminishing MP on its Mc. As soon as MP was rising Mc was falling When NP starto falling Me starts rising Now a producer will to suffer more marginal Cost as mayinal productivity is falling. Every next inpud is giving len af and put so every next unit of output in yielding more cost to producer and leading to less as prosit After a certain point his Cost will exceed his revenue and he will suffer loss True, Alium should stop expanding in its output as when MC starts rising after a certain poin, it will reach the point where MR = MC e Marginal revovae will become equal to Marginal cost under perfed marked] or we can say after a certain level AR il Price = MC. After this point is a producer continues to expand his output he will suffer lor. ne starts Same is the case with this fire, when C, rising firm must stop expanding the outbud as this will lead to los to that fium.