Assume that 1 laborer produces 6 units of output, 2 laborers produce 14 units, 3 laborers produce 20 units, and 4 laborers produce 24 units. Diminishing returns to labor set in

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Diminishing returns to labor set in when the firm hires the third laborer. At this point, the additional output produced by hiring an additional laborer is decreasing. This can be seen by the fact that the increase in output from hiring the second to the third laborer is only 6 units, while the increase from hiring the third to the fourth laborer is only 4 units. Therefore, the optimal number of laborers to hire for maximum output is three.

Assume That 1 Laborer Produces 6 Units of Output, 2