Question

1. Consider the following information for a certain table manufacturer in the short run (with its existing plant and equipment):

Units of Labor: 0 1 2 3 4 5 6 7 8 Number of Tables: 0 4 10 18 24 28 30 28 25

1. Find and plot the marginal and average product of labor (MPL and APL) for this production function.

2. Does this production function exhibit diminishing marginal returns to labor? Explain.

3. Briefly explain in terms of production theory what might cause the marginal product

   of labor to become negative (as observed for the 7th and 8th units of labor).

4. You were hired as a consultant by the firm’s CEO, who is concerned about the low

   productivity of his workers relative to other table manufacturers in the industry – despite being happy and motivated. Can you suggest the CEO a way (or two) to increase labor productivity?

Answer 1

1.

MPL= Change in Number of tables / Change in units of labor

APL= Number of tables / units of labor

Labor	Number of tables	AP	MP
0	0	0	0
1	4	4	4
2	10	5	6
3	18	6	8
4	24	6	6
5	28	5.6	4
6	30	5	2
7	28	4	-2
8	25	3.125	-3

Diminishing marginal return to labor means the decrease in marginal product of labor as units of labor increases.

This production function exhibits diminishing marginal return when units of labor exceeds the quantity of 3.

Marginal product of labor become negative because of negative return to a labor. The reasons behind this are:

• Limitation of fixed factor to remain same.
• Coordination problem between Labor and fixed factor.

Two ways to increase labor productivity are:

1. By investing more in technology so that inputs can produce more output.
2. Invest in skills and training of labor.