If the marginal product of labor has been rising with each labor unit hired over the past 30 labor units, then the marginal cost of production has _________ as output rose with these last 30 hired labor units.
a) been falling
b) held constant
c) been rising
Answer -
Option a) - has been falling is correct.
Explanation -
Marginal cost of production refers to additional cost of production
of one additional unit by additional units of factor inputs.
In the given case marginal product of labour has rising with each
labour unit over past 30 labour units then the marginal cost of
production has been falling with rise in output.As marginal product
and marginal cost is inversely related with each other. When
marginal product increases ,marginal cost decreseas and vice
versa.In the above example also with additional labour units
,marginal product increases so marginal cost has been falling.
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