Question

When does Elmo reach a diminishing marginal return of labor?

A. When he starts a new job.
B. When the marginal cost exceeds the marginal revenue.
C. When the additional output per unit of input decreases.
D. When the total cost is minimized.

Answer 1

Elmo reaches diminishing marginal return of labor when the additional output per unit of input decreases, corresponding to a situation where adding more workers leads to a less than proportional increase in the total output due to fixed capital limitations.

Step-by-step explanation:

Elmo reaches a diminishing marginal return of labor when the additional output per unit of input decreases, which is in line with the Law of Diminishing Marginal Product. This occurs when, for example, hiring an additional worker leads to a less proportionate increase in total output due to limitations such as fixed capital. This situation would be represented by choice C: When the additional output per unit of input decreases.

Diminishing marginal productivity begins when the contribution of the next worker results in a smaller increase in total product compared to the previous worker. In our example, adding more lumberjacks eventually results in less additional trees being cut down because the two-person saw and other resources can only be used effectively by a certain number of laborers. This is a fundamental aspect of the production process in the short run.