Microeconomics

Marginal Productivity and the Law of Diminishing MarginalReturns

You have recently been hired to manage a movie theater. Youobserve that there are many customers waiting around the concessionarea to buy snacks. You also observe that there is only one clerkworking the counter. This employee has to do everything from getthe popcorn going, stocking condiments and supplies, changing thesoda canister when the syrup runs out for fountain drinks, helpingcustomers, fill orders, collect cash, and of course, smile at thecustomers who have waited lengthy periods of time.

You obtain a report that shows the average sales per weekendnight are $500 with one clerk. You decide to hire another clerk forthe shift and sales increase to $1,000. You add one more clerk, andsales increase to $1,700. Again, you add another clerk, and salesincrease to $1,900. Finally you add one more clerk, and salesincrease to $2,000.

1.         Calculate themarginal product associated with each clerk. Draw a tableto do this.

2.         At what pointdid the law of diminishing marginal return become evident?

3.         Why did themarginal product increase as more clerks were added initially?

4.         Why did themarginal product start to diminish?