10. The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000.

Barb's Bakery employs three workers who produce 6 cakes per hour. After Barb hires a fourth worker, production increases to 12 cake per hour. Which of the following statements is TRUE? a. b. C. d. Because the marginal product of the fourth worker is greater than the average product of three workers, the average product must rise. Because the marginal product of the fourth worker is less than the average product of three workers, the average product must fall Because the marginal product of the fourth worker is less than the average product of three workers, the average product must rise. Because the marginal product of the fourth worker is greater than the average product of three workers, the average product must fall.

GM cuts jobs at its Australian manufacturing unit GM will cut 500 jobs, or about 12% of its workforce, at its Australian plant because of a sharp fall in demand for its locally-made "Cruze" small car. Source: The Wall Street Journal, April 8, 2013 As GM cuts its workforce, how will the marginal product and average product of a worker change in the short run? Suppose that before the cuts the marginal product of GM workers is below their average product. As the number of workers decreases, the marginal product of a GM worker and the average product of a GM worker in the short run. increases; decreases does not change; does not change decreases; decreases increases; increases decreases; increases

Macmillan Learning Consider the table, which reports production information for a firm that uses a fixed amount of capital and varying amounts of labor. Use this information to answer the questions. Do not round answers. What is the marginal product of the third worker? Third worker's marginal product: units What is the average product of the second worker? Round your answer to the nearest whole number. Second worker's average product: units What are diminishing marginal returns, and with which worker do they set in for this firm? Diminishing marginal returns occur in the short run when variable inputs are added to a fixed input, and marginal product declines. In this case, diminishing returns set in with the fourth worker. O Diminishing marginal returns occur in the short run when variable inputs are added to a fixed input, and product declines. In this case diminishing Workers 1 2 3 4 Output (total product) 23 27 33 37