Question

In the early years of the 20th Century, the inner shell of sea oysters—called Mother-of-Pearl (MOP)—was used to create shirt buttons and to decorate jewelry boxes, revolvers and walking canes. Nearly all MOP was harvested off the coast of Australia by hundreds of oyster diving companies using boats called luggers. The harvest season began in April after the threat of cyclones subsided and ended 9 months later in December. Yasukichi Murakami ran a small oyster company from his general store in the Asiatic Quarter of Broome, Australia. Suppose Yasukichi leased a lugger and its diving equipment for the entire 1912 season, agreeing to pay the owner 44£ per month during the 9-month season regardless of whether he used the lugger. The size of his crew varied over the course of the season but typically included a diver and his tender along with a cook and several laborers who shelled oysters and pumped air to the diver. Yasukichi also bought food and fuel for the lugger. This link contains Figure 1A which illustrates the market for mother-of-pearl (MOP) in 1912 and Figure 1B which illustrates the cost curves of the Murakami Oyster Company. The quantity of MOP is measured in hundredweights (cwt), which equals one twentieth of a ton.

According to the Law of Diminishing Marginal Returns, as Yasukichi ________.

A. consumes more MOP, the marginal utility of MOP will eventually increase
B. consumes more MOP, the marginal utility of MOP will eventually decrease
C. hires more laborers, the marginal product of labor will eventually increase
D. hires more laborers, the marginal product of labor will eventually decrease

Answer 1

As Yasukichi hires more laborers, the Law of Diminishing Marginal Returns indicates that the marginal product of labor will eventually decrease due to inefficiencies caused by over-utilization of fixed resources.

Step-by-step explanation:

According to the Law of Diminishing Marginal Returns, as Yasukichi hires more laborers, the marginal product of labor will eventually decrease.

This economic principle states that if a company continues to increase one input (labor) while holding other inputs (like capital and technology) constant, there will come a point where the additions of labor will produce diminishing increases in output, and eventually, could cause a decrease in the output per laborer.

This happens because, beyond a certain point, the fixed resources (like space on the lugger, oysters available to be processed, etc.) become over-utilized, leading to inefficiencies such as overcrowding and reduced productivity.