The following table represents the relationship between various levels of labor
ID: 1198197 • Letter: T
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
Labour days per season
Bushels of corn per season
Marginal productivity of labour
13
254
-
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
The marginal productivity is calculated by finding the change in Bushels of corn produced per season to the change in labour days per season.
(a) As the table shows, the marginal productivity keeps on diminishing as more and more labour days per season are employed. This means it is consistent with diminishing marginal productivity.
(b) Cost of labour per day = 8 Bushels of corn
The labour will be employed upto that point where the cost of labour is equal to its marinal productivity. The marginal productivity is equal to 8 at 20 labour days. So, the maximum rental value of the 3 acres of land per season is:
20 * 8 = 160 Bushels of corn
(c) At the wage rate higher than 8 bushels of corn, further employment of labour will result in lesser marginal productivity than the wage.
(d) When 20 labour day are used to produce 366 bushels of corn, the marginal product of 3 acres of land is 8. Assuming constant returns to scale, marginal product of one acre of land will be the same.
Labour days per season
Bushels of corn per season
Marginal productivity of labour
13
254
-
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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