Question

If the marginal production of labor is falling, is the marginal cost of production rising or falling? Briefly explain.

Answer 1

Answer:

Marginal Product of Labour falling , Marginal Cost of Production rising .

Explanation:

Theory of Variable Proportions / Diminishing Marginal Productivity states : As more variable inputs are employed  on a fixed factor , 3 phases - 1. Total product (TP) increases at increasing rate & Marginal Product Increases , (inflexion - TP max , MP 0) , 2. TP increases at decreasing rate & MP decreases , 3. TP falles & MP negative .

This happens because: 1. Initially when Variable Factors are employed on fixed factor - fixed  factor is better utilised ,variable factor efficiency increases . 2. Then - specialisation , division of labour lets attain optimum factors combination & variable factor thereafter becomes imperfect substitute for lacking fixed factor. 3. At last , more variable factor employment makes fixed factor over crowded & creates pressure on it.

This variable factor productivity affects cost : 1. TP increasing at increasing rate , MP increases - TC increases at diminishing rate , MP falls. Afterwards TP increasing at diminishing rate , MP falling - TC increases at inceasing rate , MC increases