Question

Consider the following units of variable input 1, 2, 3, 4, and 5 and the corresponding total outputs are 8, 16, 24, 31, and 36 respectively. At what point do diminishing marginal mreturns set in?

Answer 1

Diminishing marginal returns set in when the output per unit of input starts to decrease as additional units of input are added.

Step-by-step explanation:

From the graph that once production starts, total costs and variable costs rise. While variable costs may initially increase at a decreasing rate, at some point they begin increasing at an increasing rate. This is caused by diminishing marginal productivity which we discussed earlier in the Production in the Short Run section of this chapter, which is easiest to see with an example. As the number of barbers increases from zero to one in the table, output increases from 0 to 16 for a marginal gain (or marginal product) of 16.

As the number rises from one to two barbers, output increases from 16 to 40, a marginal gain of 24. From that point on, though, the marginal product diminishes as we add each additional barber. For example, as the number of barbers rises from two to three, the marginal product is only 20; and as the number rises from three to four, the marginal product is only 12.