Introduction

By comparing the marginal product diagram with the production function diagram we can see the relationship between marginal product and production function.

If the marginal product increases, then the total product increases , at an increasing rate, and when marginal product decreases, total product increases at a decreasing rate. When marginal product is negative, total production declines.

Activity

Do the following activity to see if you understand the graphical representation of the law of diminishing returns:

The diagram below represents the production function for Best Barber. Study this diagram and answer the question.

a. What is the marginal product of the second barber?

b. What is the marginal product of the fifth barber?

c. What is the maximum number of haircuts that Best Barber can reach?

d. How many barbers should Best Barber employ to reach its maximum output?

e. At what point does the marginal product start to diminish?

f. At what point does total product start to decrease?

Click to Show Answer

a. As the second barber is added, the total product (the quantity of haircuts) increases by
40 – 16 = 24 as can be seen from the following diagram:

b. As the fifth barber is added, the total product (the quantity of haircuts) increases by
80 – 72 = 8 as can be seen from the following diagram:

c. It is 84, as indicated by the following diagram:

d. It is six barbers.

e. It is after the third barber, as indicated in the following diagram:

f. Total product reaches its maximum when six barbers are employed and then starts to decrease.

According to the law of diminishing returns ____________.

Incorrect. According to the law of diminishing returns, as more of a variable input is added to fixed inputs, total product will increase, but at a diminishing rate. In other words, the marginal product decrease.

Incorrect. According to the law of diminishing returns, as more of a variable input is added to fixed inputs, total product will increase, but at a diminishing rate. In other words, the marginal product decrease.

Correct. According to the law of diminishing returns, as more of a variable input is added to fixed inputs, total product will increase, but at a diminishing rate. In other words, the marginal product decrease.

Incorrect. As long as the marginal product is positive, total product will increase.