Question

1 - The number of repairs produced by a computer repair shop depends on the number of workers as follows:

Number of workers	Number of repairs
0	0
1	10
2	22
3	36
4	54
5	58
6	66
7	70
8	69

Assume inputs other than labor are fixed in the short run.

a) Add two additional columns to the table and enter the marginal product and average product for each number of workers.

b) Over what range of labor output are there increasing returns to labor? Diminishing returns to labor? Negative returns?

c) What quantity of labor will maximize efficiency? Explain your answer.

d) Over what range of labor input is marginal product smaller than average product? What is happening to average product as employment increases over this range?

Answer 1

(a)

(i) Marginal product (MP) = Change in number of repairs (Q) / Change in number of workers (L)

(ii) Average product (AP) = Q / L

Number of workers (L)	Number of repairs (Q)	MP	AP
0	0
1	10	10	10
2	22	12	11
3	36	14	12
4	54	18	13.5
5	58	4	11.6
6	66	8	11
7	70	4	10
8	69	-1	8.625

(b)

When 1<= L <= 4 and 10 <= Q <= 54, MP is increasing, therefore there is increasing returns to labor.

When (L = 5, Q = 58) and (L = 7, Q = 70), MP is decreasing, therefore there is diminishing returns to labor.

When L = 8 and Q = 69, MP < 0, so there is negative returns to labor.

(c)

Efficiency is maximized when MP starts to decrease (the first time). From above table, MP starts falling for the first time after L = 4. Therefore, efficient quantity of labor is 4 workers.

(d)

MP < AP when 5 <= L <= 8. Over this range, as employment (L) increases, average product decreases.