In the short run, if a firm's marginal physical product of labour is decreasing,a) the firm's output must also be decreasing.b) the firm's variable cost must be decreasing.c) the firm’s marginal cost must be increasing.d) the firm’s average variable cost must be decreasing
Question
In the short run, if a firm's marginal physical product of labour is decreasing,a) the firm's output must also be decreasing.b) the firm's variable cost must be decreasing.c) the firm’s marginal cost must be increasing.d) the firm’s average variable cost must be decreasing
Solution
c) the firm’s marginal cost must be increasing.
Here's why:
The marginal physical product of labour (MPPL) is the additional output a firm gets by employing an extra unit of labour, holding all other inputs constant. When the MPPL is decreasing, it means that each additional worker is producing less output than the worker before.
Marginal cost (MC) is the cost of producing one more unit of a good. It is inversely related to the MPPL. When the MPPL is high, it means that labour is very productive, so the cost of producing an extra unit of output (MC) is low. Conversely, when the MPPL is low (or decreasing), it means that labour is less productive, so the cost of producing an extra unit of output (MC) is high.
Therefore, if a firm's marginal physical product of labour is decreasing, the firm’s marginal cost must be increasing.
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