Question

16.

Exhibit 22-2

(1)	(2)	(3)	(4)	(5)
Variable Input	Total Variable Cost	Total Fixed Cost	Output	Marginal Cost
1	$30	$100	20
2	$60	$100	50	(A)
3	$90	$100	90	(B)
4	$120	$100	120	(C)
5	$150	$100	140	(D)

Refer to Exhibit 22-2. Diminishing marginal returns set in with the addition of which unit of the variable input?

	a.	the first
	b.	the third
	c.	the fourth
	d.	the fifth
	e.	the second

Answer 1

option c

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MP of n th unit of output =TP(n)-TP(n-1)

MP(1)=20-0=20, MP(2)=(50-20)=30 and so on

MC(n)=(TVC(n)-TVC(p))/(n-p)
MC(n)=marginal cost of n th unit
TC(n)=Total variable cost of n units of output
TC(p)=Total Variable cost of p unit of output
here, n>p.

MC(50)=(60-30)/(50-20)=1, MC(90)=(90-60)/(90-50)=0.75 and so on

Variable Input	Total Variable Cost	Total Fixed Cost		Marginal Cost
			Output		MP
1	30	$100	20		20
2	60	$100	50	1	30
3	90	$100	90	0.75	40
4	120	$100	120	1	30
5	150	$100	140	1.5	20

A diminishing marginal return set in when the marginal product begins to decrease or the MC begins to increase

the Diminishing marginal returns set in with the addition of 4 the variable input

option c