A farm uses labour (L) to produce output (Q) as shown in the table below.\n\n| L (workers) | Q (output units) |\n|--------------|------------------|\n| 1 | 10 |\n| 2 | 25 |\n| 3 | 45 |\n| 4 | 70 |\n| 5 | 100 |\n\n(a) Calculate the average product of labour (AP = Q/L) for each level of labour.\n(b) Determine the marginal product of the fourth worker (increase in output when labour rises from 3 to 4).\n(c) Based on the pattern of AP and MP between the third and fifth workers, state whether the farm is experiencing increasing, diminishing, or constant returns to labour, and justify.\n(d) The wage rate is $\text{₦}5$ per worker and the price of output is $\text{₦}2$ per unit. If a sixth worker is hired and is expected to add 20 units of output, should the farm hire the sixth worker? Show the change in profit.

Question

A farm uses labour (L) to produce output (Q) as shown in the table below.\n\n| L (workers) | Q (output units) |\n|--------------|------------------|\n| 1            | 10               |\n| 2            | 25               |\n| 3            | 45               |\n| 4            | 70               |\n| 5            | 100              |\n\n(a) Calculate the average product of labour (AP = Q/L) for each level of labour.\n(b) Determine the marginal product of the fourth worker (increase in output when labour rises from 3 to 4).\n(c) Based on the pattern of AP and MP between the third and fifth workers, state whether the farm is experiencing increasing, diminishing, or constant returns to labour, and justify.\n(d) The wage rate is $\text{₦}5$ per worker and the price of output is $\text{₦}2$ per unit. If a sixth worker is hired and is expected to add 20 units of output, should the farm hire the sixth worker? Show the change in profit.

Accepted Answer

AP: 10, 12.5, 15, 17.5, 20; MP of 4th worker = 25; Increasing returns; Hire sixth worker - profit rises by ₦35

Gce Model Questions Vol1 2022 Economics Question 49

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