A restaurateur spends $61 on labor and materials to produce 8 meals. By increasing these costs to $78, he can produce 14 meals. By increasing costs to $95, he can produce 20 meals. In terms of capital and labor, he has _____.

Question

increasing marginal returns

decreasing marginal returns

negative marginal returns

constant marginal returns

Answer 1

To analyze the situation regarding the production of meals as the costs change, we can look at the change in costs and the change in the number of meals produced.

1. From $61 to $78, the cost increases by \(78 - 61 = 17\), and the number of meals increases from 8 to 14, which is an increase of \(14 - 8 = 6\) meals.
2. From $78 to $95, the cost increases by \(95 - 78 = 17\), and the number of meals increases from 14 to 20, an increase of \(20 - 14 = 6\) meals.

Now, we can see the changes:

• For the first interval:

  • Cost increase = $17
  • Meals produced increase = 6

• For the second interval:

  • Cost increase = $17
  • Meals produced increase = 6

In both cases, the cost increase of $17 results in the production of 6 more meals. This indicates that even with higher costs, the additional meals produced remains consistent.

Since the additional output (meals) gained from increasing the input costs (labor and materials) remains constant as the costs rise, we can conclude that the restaurateur is experiencing constant marginal returns.

So, the answer would be:

constant marginal returns.