Question

A company can take advantage of ___, as the ____of the first group of workers will increase, but at a certain point it will decline. At this point,____ will continue to increase, but marginal product will diminish with each additional worker. Eventually there will be too many workers and not enough ___ to keep them busy, inevitably slowing down production and reducing output.

consumers, marginal, product, capital resources, total output, specialization

Answer 1

This paragraph is about law of diminishing returns. This law can be explained in three stages:

1. This law states that the marginal product of workers will keep on increasing initially as we employ more and more workers.

2. However, once the ideal ratio of capital and labor is reached, the marginal product starts declining. In this stage, the total product will be positive since the marginal product is rising but has not becomes negative yet. (Total product at a point is the summation of marginal products upto thay point).

3. In this stage, as we keep on increasing the the marginal product becomes negative as we employ more and more workers and total product/output starts declining.

Accordinly, the blanks will become):

A company can take advatage of specialization, as the marginal product of first group of workers will increase, but at a certain point it will decline. At this point, total output continues to increase.

Eventually, there will be too many workers and not enough capital resources to keep them busy.