Question

The menu at Joe's coffee shop consists of a variety of coffee drinks, pastries, and sandwiches. The marginal product of an additional worker can be defined as the number of customers that can be served by that worker in a given time period. Joe has been employing one worker, but is considering hiring a second and a third. Explain why the marginal product of the second and third workers might be higher than the first. Why might you expect the marginal product of additional workers to diminish eventually?

Short answer

The marginal product of second and third workers might be higher than the first because they can share the responsibilities, improving efficiency and serving more customers. However, eventually, the marginal product of workers might diminish because when the number of workers is beyond the roles available, it might create inefficiency, leading to diminishing marginal returns.

Step-by-step solution

Understanding Marginal Product

\'Marginal Product\' in economics refers to the additional output resulting from adding an extra unit of input, in this case, a worker. Here, it is defined as the number of customers served by a particular worker in a given time period.

Explaining Higher Marginal Productiveness of Second and Third Workers

The marginal product of the second and third workers could be higher than the first one due to several reasons. For instance, the first worker might need to handle all tasks, from taking orders, prepping food, serving customers to cleaning. When a second worker is hired, tasks can be divided. This division could increase efficiency and thus, more customers can be served in the same amount of time. The same applies when a third worker is hired.

The Law of Diminishing Marginal Returns

In economics, the Law of Diminishing Marginal Returns suggests that as a company continues to add more units of a certain input (like labor), at some point, the additional output from each extra unit of input will start to decrease. After hiring a certain number of workers, further hires may not increase customer service significantly as there are only so many roles to perform. Also, more workers could lead to overcrowding and less efficiency.

Example for Diminishing Marginal Returns

For example, if Joe hires a fourth worker who takes over cash handling, while the other three perform tasks like taking orders, preparing food, and cleaning respectively. Now, if Joe hires a fifth worker, they may only marginally improve efficiency, ensuring that queues move faster. However, this additional efficiency will certainly be less compared to the addition of the second or third worker who were able to add much greater value by taking over significantly larger roles.