The following table represents the relationship between various levels of labor

Question

The following table represents the relationship between various levels of labor input and corn output on a 3-acre plot of land: Is this table consistent with diminishing marginal productivity? If each day of labor costs the equivalent of 8 bushels of corn, calculate the maximum rental value (in bushels of corn) of the 3 acres of land per season. At what wage rate, in terms of corn, would the land have no rental value? Assuming constant returns to scale, calculate the marginal product of one acre of land, when 20 labor-days are being used to produce 366 bushels of corn.

Explanation / Answer

(a) At diminishing marginal productivity, with every additional unit of an input, increased productiivty that generated decreases.

As we can see in the above table that marginal productivity (equals Change in bushels of corn/change in labor days) decreases with the increase of labor days, thus it is consistent with diminishing marginal productvity.

(b) Maximum days in the season = 22 days

Cost of per day = 8 bushels

Total maximum cost = 22* 8 = 176 bushels.

Labor Days Bushels of Corn Marginal Productivity 13 254 0 14 278 24 15 300 22 16 320 20 17 336 16 18 348 12 19 358 10 20 366 8 21 372 6 22 376 4

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