📚 Learning Guide
Marginal Returns and Labor Supply
easy

What happens to marginal returns when additional units of labor are employed while keeping capital constant?

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Choose the Best Answer

A

They always increase

B

They always decrease

C

They may increase or decrease

D

They remain constant

Understanding the Answer

Let's break down why this is correct

Answer

When more workers are hired while keeping the amount of equipment and tools the same, we often see something called diminishing marginal returns. This means that each new worker added produces less extra output than the worker before them. For example, if the first worker makes 10 toys in an hour, the second might only make 8 toys, and the third could make just 5. This happens because there are limited resources, like machines, to share among the workers. So, as more workers come in, they have to share the same tools, which can lead to crowded conditions and less efficiency.

Detailed Explanation

When you add more workers but keep machines the same, each worker has less to work with. Other options are incorrect because Some might think that more workers always mean more output; It's a common mistake to think that returns can change in any direction.

Key Concepts

Labor supply
Topic

Marginal Returns and Labor Supply

Difficulty

easy level question

Cognitive Level

understand

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