Suppose you run a pizza shop and currently have two employees.If you hire a third employee,your output of pizzas per day rises from 55 to 65.If you hire a fourth employee,output rises to 80 per day.A fifth and sixth employee would cause output to rise to 90 and 95 per day,respectively.Pick the correct statement:
A)Diminishing returns set in with the hiring of the fourth worker.
B)Diminishing returns set in with the hiring of the fifth worker.
C)Diminishing returns set in with the hiring of the sixth worker.
D)Diminishing returns set have not yet set in because output is still increases.

Question

Quizplus · Accepted Answer

Diminishing returns set in with the hiring of the fifth worker because the marginal product of adding the fifth employee is only 10 (output increases from 80 to 90), while the marginal product of adding the fourth employee was 15 (output increases from 65 to 80). This means that adding the fifth employee is not as productive as adding the fourth employee, indicating that diminishing returns have set in. The marginal product of adding the sixth employee is even lower (output only increases by 5), further confirming that diminishing returns have already set in.

Suppose You Run a Pizza Shop and Currently Have Two