Question

Assume a toy company hires an additional worker to assemble toys, and the size of the factory and amount of equipment remain constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of

A. the law of poor planning
B. the law of diminishing returns
C. Say's Law
D. the law of substitution

Answer 1

The scenario described in the question is an example of the law of diminishing returns. As a firm hires additional workers, the marginal increase in output becomes smaller due to fixed capital. This concept is applicable to the scenario of a toy company hiring an additional worker.

Step-by-step explanation:

The scenario described in the question is an example of the law of diminishing returns. This law states that as a firm hires additional workers, the marginal increase in output will become increasingly smaller. Initially, hiring an additional worker may result in a significant increase in output, but as more workers are added, the increase in output becomes smaller.

This occurs because of the fixed capital in the factory, which refers to the size of the factory and the amount of equipment. In the short run, the fixed capital limits the productivity of additional workers and leads to diminishing returns.

For example, when the toy company hires an additional worker, the level of output increases but by a smaller amount compared to when the previous additional worker was hired. This is because the fixed capital, such as the factory size and equipment, cannot be easily changed in the short run.