The following table shows total output (in tax returns...

The following table shows total output (in tax returns completed per day) of the accounting firm of Hoodwink and Finagle: $$\begin{array}{cc}\text { Number of } & \text { Number of Returns } \\\text { Accountants } & \text { per Day } \\\hline 0 & 0 \\1 & 5 \\2 & 12 \\3 & 17 \\4 & 20 \\5 & 22\end{array}$$ Assuming the quantity of capital (computers, adding machines, desks, etc.) remains constant at all output levels: a. Calculate the marginal product of each accountant. b. Over what range of employment do you see increasing returns to labor? Diminishing returns? c. Explain why $M P L$ might behave this way in the context of an accounting firm.

The following table shows total output (in tax returns completed per day) of the accounting firm of Hoodwink and Finagle:
$$\begin{array}{cc}\text { Number of } & \text { Number of Returns } \\\text { Accountants } & \text { per Day } \\\hline 0 & 0 \\1 & 5 \\2 & 12 \\3 & 17 \\4 & 20 \\5 & 22\end{array}$$
Assuming the quantity of capital (computers, adding machines, desks, etc.) remains constant at all output levels:
a. Calculate the marginal product of each accountant.
b. Over what range of employment do you see increasing returns to labor? Diminishing returns?
c. Explain why $M P L$ might behave this way in the context of an accounting firm.

Key Concepts

Increasing Returns to Labor

Increasing returns to labor occur when each additional unit of labor adds more output than the previous unit, which is often a sign that workers are cooperating or that the fixed capital is underutilized. This phenomenon typically happens at lower levels of labor where the existing capital is not fully exploited, leading to rising marginal productivity as more labor is added.

Diminishing Returns to Labor

Diminishing returns to labor occur when each additional worker contributes less to output than the previous one, due to labor crowding or the inefficient use of fixed capital. This is a common occurrence when too many workers are sharing a constant amount of capital, leading to a decrease in the marginal product of labor as additional staff are employed.

Total Product

Total product refers to the total quantity of output produced using a given combination of inputs. In the context of labor and fixed capital, it is the overall result—such as the number of completed tax returns—that the firm achieves when varying levels of employee input are employed while maintaining constant levels of other resources.

Marginal Product of Labor (MPL)

The marginal product of labor is defined as the additional output resulting from the employment of an extra unit of labor, holding other inputs constant. It is calculated as the change in total product divided by the change in the number of workers, and it helps to identify how effectively additional labor is being used to increase total production.

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