Reggie Ogbonna

5.2.2b Production Data Analysis

Procedure:
1. Open Microsoft Excel
2. Using your worksheet from our origami paper cup activity set up a table so that we can calculate the
marginal Product and Cost per unit. Your table should resemble the layout of the rows and columns on
your worksheet.
3. Put in a function to calculate your marginal product and use that function to auto calculate that column.
4. Put in a function to calculate your cost per unit of marginal product and use that function to auto
calculate that column.
5. Create ONE line graph to show the relationship between the number of workers and the following:
a. Total Production
b. Marginal Product
c. Cost Per Unit of Marginal Product
Important Information:
1. Marginal Product is the change in output that occurs when a unit of labor is added (employee is hired)
2. Marginal Product can be calculated by subtracting the labor output from round 0 from round one, the
output from round 1 from round 2, and so on. As an example say the production occurred as follows in the
four rounds: 5, 12, 17, and 20. Note that if there is no labor there is no output. Then the first worker helped
add 5 units of output (5 minus 0). The second worker added 7 units of output (12 minus 5), the third worker
added 5 units and the fourth worker added 3 units. Diminishing returns set in with the third worker in this
example because the marginal product declined from 7 to 5 with the addition of the third worker. Note the
reason for this is that with only one pair of scissors only so much can be cut, so additional workers are
probably waiting on patterns to be cut. Thus, additional workers cant add as much output as previous
workers.
3. Cost Per Unit of Marginal Product takes what each employee (unit of labor) would be payed and compares
it to how much output was produced to find out how much it costs to produce one unit of output. For
example, say each worker gets paid $7 during the period of production. Since the first worker added 5 units
of output, those units cost the company an additional (in addition to the cost of the scissors and the paper)
$1.40 per unit of output ($7 divided by 5). The second worker added 7 units of output, or added output at $1
per unit of output ($7 divided by 7). The third worker added output at $1.40 per unit of output and the fourth
worker added output at a cost of $2.33 per unit of output added.

Reggie Ogbonna
Conclusion Questions (Please complete these questions and the letter in Microsoft Word):
1. What factors of production were used to produce the cups?
We split up the jobs (cutting and folding) so that we worked faster. We used people, scissors, and folding
directions.


2. With the addition of what worker(s) did diminishing returns occur?
Yes it did occur when we got to 5 workers. The cost jumped up because production slowed.


3. What happens to the cost per unit as diminishing returns set in?

Cost per unit increases as diminishing returns sets in.

4. Why is it important for an entrepreneur to understand the concept of diminishing returns?
It is important for them to understand this concept so they know how many workers to hire in order to
maximized profit an keep costs low.


5. The scissors that were used to cut out the cup origami pattern would be an example of

A. labor
B. land
C. capital
D. entrepreneurship


6. If 1 worker produces a total of 4 units of output, 2 workers produce a total of 10 units of output, 3 workers
produce a total of 18 units of output, 4 workers produce a total of 25 units of output, 5 workers produce a
total of 30 units of output, and 6 workers produce a total of 28 units of output, with the addition of what
worker do diminishing returns first occur?

A. worker 6
B. worker 3
C. worker 4
D. worker 5


7. Briefly explain what the entrepreneur could do to improve the productivity of the additional workers hired.
Use complete sentences for your answer.

Maybe he could make them each do a different task to increase efficiency. He could also give them more
space to work.








Reggie Ogbonna
8. Write a letter to the owner of the cup factory explaining the concept of diminishing returns and then offer
suggestions on how to improve the productivity of the additional workers hired. Students should apply the
principles of six-trait writing to their letters.

Dear Owner,
The law of diminishing returns states that after adding workers, eventually production will decrease
and price will have to increase. This is a big mistake made in most failing businesses. Specialization of
tasks is one way to keep this from happening when hiring new workers. This way, you save time and run a
more efficient business. On the assembly line, limited space can also lead production to decrease. Spacing
workers out more and putting them with others that are doing their job creates a more orderly and
smoother running work environment. Diminishing returns does not just concern workers. For example,
the right amount of wax inside the lining of your cups can help it hold when hot liquids are inside, but too
much wax will hurt the product. These are things to seriously consider in your business. I wish you and
your business the best with this new knowledge of the law of diminishing returns.
Sincerely, Reggie Ogbonna