Question

Your friend has a large garden and grows fresh fruit and vegetables to be sold at a local “farmer’s market.” Your friend comments, “I hired a college student who was on summer vacation to help me this summer and my production more than doubled. Next summer, I think I’ll hire two or maybe three helpers and my output should go up more than three- or fourfold.”

a. How could it be true that your friend hired a helper (double the labor) and more than doubled his production? Briefly explain.

b. Is it likely that he could hire more workers and continue to reap greater than proportional increases in production? Why? Briefly explain.

c. In the long run, what must your friend do if he wants to continue to hire workers and have those workers generate proportional increases in production? Briefly explain.

Answer 1

Answer 1 : It is possible because of law of variable proportion in which land is fixed factor which is unutilised. When more labor is hired then, it results in increase in productivity. Adding on labor will be increasing productivity.

Answer 2: As he hire more and more workers, productivity will be increasing at increase rate, then at 2nd stage it will be increasing at decreasing rate and then at point it will be maximum and the stage will ultimately come when there will be negative returns.

It was about law of variable proportions in which there are three stages , Increasing returns, decreasing returns and negative returns.

Answer 3 : Due to fixed land labor can be increased upto some extent, because beyond particular point, it will be generating negative return.

Hence it is suggested to increase area of land in order to increase productivity or can adopted new technology which would improve production.

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