📚 Learning Guide
Marginal Returns and Labor Supply
easy

What happens to the marginal returns when additional units of labor are added to a fixed amount of capital?

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Learning Path

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Choose the Best Answer

A

They increase indefinitely

B

They eventually decrease

C

They remain constant

D

They become negative immediately

Understanding the Answer

Let's break down why this is correct

Answer

When we add more workers to a fixed amount of capital, like machines or tools, we can see changes in how much extra output each worker can produce. At first, adding more workers often leads to higher production because they can work together and use the machines more effectively. However, after a certain point, adding more workers results in smaller increases in output. This is because the fixed amount of capital can become crowded, and workers may get in each other’s way or have to wait for machines. For example, if a bakery has one oven and adds more bakers, the first few bakers can work efficiently, but eventually, too many bakers will lead to delays and less extra bread being made.

Detailed Explanation

When you add more workers to the same tools and machines, each new worker helps less than the one before. Other options are incorrect because Some might think that more workers always mean more output; It's a common mistake to think that adding workers keeps output the same.

Key Concepts

Marginal returns
Topic

Marginal Returns and Labor Supply

Difficulty

easy level question

Cognitive Level

understand

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