Question

A firm uses the inputs of fertilizer, labor, and hothouses to produce roses. Suppose thatwhen the quantity of labor and hothouses is fixed, the relationship between the quantity offertilizer and the number of roses produced is given by the following table:

Tons of fertilizer / month	No of roses/ month	Tons of fertilizer / month	No of roses/ month
0	0	5	2500
1	500	6	2600
2	100	7	2500
3	1700	8	2000
4	2200	-	-

(Hint, write out the average and marginal product for each ton of fertilizer)
1. What is the average product of fertilizer when 4 tons are used? (2m)
2. What is the marginal product of the sixth ton of fertilizer? (2m)
3. Does this total product function exhibit diminishing marginal returns? If so, over
what quantities of fertilizer is it diminishing?
4. What is the efficient level of output it must produce at?  

Answer 1

APL = Q / L

MPL = Change in Q / Change in L

L	Q	APL	MPL
0	0
1	500	500	500
2	1000	500	500
3	1700	566.67	1200
4	2200	550	1000
5	2500	500	1500
6	2600	433.33	1100
7	2500	357.14	1400
8	2000	250	600

(1)

When L = 4, APL = 550

(2)

When L = 6, MPL = 1100

(3)

Starting 6th ton of fertilizer, MPL is decreasing with increase in L. So diminishing returns occurs from 6th ton of fertilizer.

(4)

Production is efficient when MPL is maximized (= 1500) and Q = 2500.