Question

Ray's Pizzeria is considering the addition of a 5th worker if this increases profit. Pizza sales increased from 300 per day to 360 per day when the 4th worker was added, indicating that the marginal product of the 4th worker was equal to blank1 - Numeric Answer Type your answer here Please type your answer to submit pizzas. If adding a 5th worker increases sales from 360 to 400, the marginal product of the fifth worker is blank2 - Numeric Answer Type your answer here pizzas.

Answer 1

Answer:

60 pizzas

40 pizzas

Explanation:

Marginal product measures the change in output as a result of a change in input by one unit

Marginal product = change in output / change in input

Marginal product for the 4th worker

Change in output = 360 - 300 = 60 pizzas

Change in input = 4 - 3 = 1 worker

Marginal product = 60 / 1 = 60

Marginal product for the 5th worker

Change in output = 400 - 360 = 40 pizzas

Change in input = 5 - 4 = 1

Marginal product = 40 / 1 = 40

It can be seen that marginal product decreased from 60 to 40 when the 5th worker was added. This illustrates diminishing marginal returns.

The law of diminishing returns says as more units of a variable input is added to a fixed income of production, output might increase at a point but after some time total output would increase at a decreasing rate and marginal product would be decreasing.