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4. The table below shows the number of cars produced by a car manufacturer. Car production depends on the number of workers as follows:

Assume that all other inputs other than labor are fixed. a. Complete the table by calculating MP_L and AP_L.

2. Over what range of labor are there increasing returns to scale? diminishing returns to scale? Negative returns to scale?
3. Over what range of labor is MP_L greater than AP_L? What is happening to AP_L as employment increases over this range?
4. Over what range of labor is MP_L smaller than AP_L? What is happening to AP_L as employment increases over this range?

Number of Workers	Number of Cars Produced	MPL	APL
0	0	–	–
1	6
2	18
3	33
4	51
5	66
6	75
7	78
8	77
9	69

Answer 1

a)

MPL = Cars production from n number of workers - Cars production from (n -1) number of workers

APL = Number of cars produced / Numer of workers

Number of workers	Number of Cars produced	MPL	APL
0	0	-	-
1	6	6	6
2	18	12	9
3	33	15	11
4	51	18	12.75
5	66	15	13.2
6	75	9	12.5
7	78	3	11.14
8	77	-1	9.62
9	69	-8	7.66

b) Increasing returns to scale occurs till MP is rising which is occuring before output level of 4. Diminishing returns to scale occurs when MP is falling which is occuring after output level of 4.

c) MPL is greater than APL till 5 labor are hired. APL is falling in this range.

d) MPL is smaller than APL after 5th labor is hired. APL is rising in this range.