Question

If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm's short-run average variable cost exceeds marginal cost. T/F

Answer 1

Answer:

False

Explanation:

If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm's short-run average variable cost is less than marginal cost.

At the point of diminishing marginal productivity or returns, while marginal product is falling, marginal cost is rising because they have an inverse relationship.

Furthermore, at the point of diminishing returns, with marginal product falling with increasing output, marginal cost will rise above average cost because the cost of each additional unit of labor will be higher than the the previous, hence the average will be lower.