Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. as more workers are added to operate the machines, output increases. is this a refutation of the law of diminishing marginal returns

The correct answer is: No

Explanation:

The law of diminishing marginal returns states that, during the production process, inreasing one factor of production (while maintaining all other factors constant) will yield less returns as more units are added until, after certain point, the marginal returns per unit will start decreasing. This does not necessarily translate into a lower level of total output.

In this example, the fact that more workers are added to the operation process does not imply that total production decreases, since it might still continue to increase, but at a lower rate each time.

marginal cost is a microeconomic measure that us to evaluate the extent to which the level of production of a good is sustainable in accounting, that is, to how many quantities the company plans to profit from the production of the good.

the concept of marginal cost is simple, it means the cost of producing one more item. for example, in the case of pies, the marginal cost is the cost of producing one more pie than those that have already been produced.

it is important to understand that productive activity influences marginal cost. the marginal cost of some goods can be very high, while others may be insignificant. for example, the marginal cost of producing an extra plane is very high. already the marginal cost of a water company to provide 1l more water is derisory.

in the case of pies, the cost involves the inputs, the labor and the fixed cost, which involves the fixed space of the bakery. the level of production initially has the marginal cost decreasing because there is space and manpower available. however, to produce more you have to hire more workers and buy more inputs. if physical space is limited, workers will conflict with places, inputs and their productivity will decrease, meaning there is an optimum point of production for each level of space and manpower. from this point on, the productivity of the workers will be getting smaller because of lack of space, so that the marginal cost of producing one more pie will be increasing. so, although you have not posted the chart, but if you have the answer, you can see that my explanation goes according to the marginal cost curve that will increase from the 4th pie, answer (c).

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