Question:
Assume that labour is the only variable input in a certain production activity. If this firm’s short run marginal cost is increasing as output rises, which of the following must be true?
(1) Average product of labour is constant.
(2) Average product of labour is increasing.
(3) Marginal product of labour is greater than average product of labour.
(4) Marginal product of labour is decreasing.
(5) Total product of labour is decreasing.
Correct Answer:
(4)
Answer Explanation:
Marginal Cost (MC) and Marginal Product of Labour (MPL) are inversely related ($MC = frac{text{Wage}}{MPL}$). If the cost to produce an additional unit (MC) is increasing, it mathematically means the additional output produced by each new worker (MPL) must be decreasing (Law of Diminishing Marginal Returns).
Topic: Production Year: 2022
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