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?

The marginal product of a worker is defined as the rise in total output level due to the employment of an additional worker.

According to the law of diminishing marginal returns, if a producer employs both fixed and variable inputs in the short run, the marginal product of a variable input first rises and then decreases. The reason is that the efficiency of additional inputs increases when the amount of variable inputs is low. In contrast, the efficiency of additional inputs falls when the amount of variable inputs is high.

Following this law, it can be concluded that the marginal product of the second and third workers might be higher than the first worker and they would be able to serve customers more efficiently in the initial stages, so their productivity rises. They would be able to do so by specializing in different tasks.

However, since the area of the coffee shop is fixed, the marginal product of any additional workers would gradually diminish. The reason is that the coffee shop would become congested in the later stages, so the additional workers would not be able to serve customers efficiently, so their productivity would fall.