Consider a house- construction firm with fixed capital. The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers. If it is currently building 8.8 houses per year, which of the following is true?
A) The firm has not yet reached the point of diminishing marginal productivity.
B) The firm has already passed the point of diminishing marginal productivity.
C) Average product is at a maximum with 16 workers.
D) Average product is at a maximum with 17 workers.
E) The marginal product is below the average product.

Question

Quizplus · Accepted Answer

The firm is currently building 8.8 houses per year with 17 workers, which is more than the 8 houses per year that it can build with 16 workers. This means that the firm has not yet reached the point of diminishing marginal productivity, where the additional output produced by each additional worker decreases.

Consider a House- Construction Firm with Fixed Capital