Micro Chapter 10

A factory adds a worker and subsequently discovers that the average product of its workers has risen. Therefore, the marginal product of the new worker is less than the average product of the plant's workers before the new employee's arrival.

False. For the average product to increase, the new worker should contribute more than the existing average. Thus his marginal product should be more than the average product before his arrival.

true or false: If the marginal product is decreasing, then the average product must also be decreasing

False. If marginal product is decreasing it means that the contribution to output of an additional unit of input is becoming smaller. However, it can still exceed the average product. For example, if 𝐴𝑃 = 10 and 𝑀𝑃 dropped from 12 to 11, 𝐴𝑃 would still increase since 11 > 10.

Does the law of diminishing returns apply in the short or long run?

Short Run Only

law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline