Which statement describes marginal product of labor and the law of diminishing returns?

Which statement describes marginal product of labor and the law of diminishing returns?

• A. MP_L is total output divided by labor; diminishing returns occur when MP_L increases as more labor is used.
• B. MP_L is the extra output from one more unit of labor; diminishing returns mean MP_L eventually falls as more labor is added.
• C. MP_L equals average output per worker; diminishing returns occur when average output rises with more labor.
• D. MP_L is the maximum possible output; diminishing returns occur when capacity is fully utilized.

Answer: (B)

The main idea here is how to measure the extra output from one more unit of labor and how that extra output behaves as more labor is added. Marginal product of labor is the additional output you get from employing one more worker, keeping other inputs fixed. The law of diminishing returns says that as you keep adding workers to a fixed amount of capital, the extra output from each new worker tends to fall. It may rise early on if there are gains from specialization, but eventually MP_L declines as crowding or limited capital makes each added worker less productive. That’s why the correct description is that MP_L is the extra output from one more unit of labor, and diminishing returns mean MP_L eventually falls as more labor is added. The other statements mix up MP_L with total output divided by labor (average product) or with average output per worker, or describe a situation of maximum capacity rather than the incremental change in output.

The main idea here is how to measure the extra output from one more unit of labor and how that extra output behaves as more labor is added. Marginal product of labor is the additional output you get from employing one more worker, keeping other inputs fixed. The law of diminishing returns says that as you keep adding workers to a fixed amount of capital, the extra output from each new worker tends to fall. It may rise early on if there are gains from specialization, but eventually MP_L declines as crowding or limited capital makes each added worker less productive.

That’s why the correct description is that MP_L is the extra output from one more unit of labor, and diminishing returns mean MP_L eventually falls as more labor is added. The other statements mix up MP_L with total output divided by labor (average product) or with average output per worker, or describe a situation of maximum capacity rather than the incremental change in output.