Question

Diminishing average product of workers implies rising average variable cost.

can someone tells me why this is true?

thanks

Answer 1

In initial stage of production, cost of production diminishes due to optimal utilization of resources and availability of economies of scale. In this stage Marginal and Average products rise and Average and Marginal costs fall.

But after certain point, additional resources are not efficient enough, hence cost of production starts increasing and Marginal and average products start declining.

Thus, when average production diminishes, it implies that cost of adding resources has began to rise.

There is Inverse relationship between Average cost and average variable cost.