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
E. hires more laborers, the marginal product of labor will eventually

Answer 1

The Law of Diminishing Marginal Returns suggests that hiring more laborers will result in a decrease in the marginal product of labor over time, as each additional worker contributes less to overall output after a certain point. According to the Law of Diminishing Marginal Returns, the employment of additional labor by Yasukichi will eventually lead to a diminishing marginal product of labor. Option D is correct.

Step-by-step explanation:

According to the Law of Diminishing Marginal Returns, the employment of additional labor by Yasukichi will eventually lead to a diminishing marginal product of labor. This fundamental economic principle asserts that when one specific factor of production, in this case, the number of laborers, is increased while holding other factors like equipment or capital constant, the incremental output generated by each additional worker will progressively decrease.

In practical terms, as Yasukichi hires more laborers, there is an initial phase where the overall output experiences a positive and increasing trend due to enhanced division of labor and resource utilization. However, as the workforce expands, the law posits that the efficiency gains will start to diminish, and the marginal product of each additional worker will decrease. Factors such as limited workspace, equipment constraints, or inefficient coordination may contribute to this diminishing return.

This principle serves as a critical consideration for businesses and policymakers in resource allocation and production planning. It underscores the importance of optimizing the balance between various factors of production to achieve sustainable and efficient output levels, highlighting the nuanced relationship between inputs and outputs in economic production processes.