When does the law of diminishing marginal product set in?
1 worker produce 4 units; 2 workers,10 units; 3 workers, 17 units; 4 workers, 25 units, 5 workers, 30 units; 6 workers, 35 units, 7 workers, 38 units; 8 workers, 39 units; and 9 workers, 38 units
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The law of diminishing marginal product sets in in this scenario when you hire the fifth worker. In order to see why this is so, let us first understand what “marginal product” means. The marginal product is the amount of new product that can be produced when one more unit of input is introduced. In this case, that means that it is the difference between how many units were produced when you had X worker and the number produced when you had X minus 1 workers.
In this scenario, we had the following numbers:
- 0 workers, 0 output
- 1 worker, 4 units output and therefore 4 units of marginal product
- 2 workers, 10 units output and therefore 6 units of marginal product
- 3 workers, 17 units output and therefore 7 units of marginal product
- 4 workers, 25 units output and therefore 8 units of marginal product
Up to this point, the marginal output is constantly going up. But now look what happens. When you hire the fifth worker, you only produce 30 units of output. 30 is only 5 more than 25 so your marginal output has dropped from 8 (for the fourth worker) to 5 (for the fifth worker). That means that the law of diminishing marginal product has set in when the fifth worker was hired.
Do not be fooled into saying that it happened when the 9th worker was hired. When that worker was hired, total output (not just marginal output) fell. But this question is asking about marginal output so the correct answer is that diminishing marginal product set in when the 5th worker was hired.
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