Question

2.Explain why the slope of the production function falls as more workers are hired, that is, total product increases at a decreasing rate, while the slope of the total cost curve rises as more output is produced, that is, TC increases at an increasing rate.

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Answer 1

The production function demonstrates the relationship between the quantity of inputs used in production (for example labor) and the quantity of output produced. The slope of the production function is marginal product. When marginal product falls, marginal cost rises and total cost increases at an increasing rate; and vice versa. Marginal product of labor changes from a positively to a negatively sloped function because of the law of diminishing return. Due to this a firm hires a labor until the value of their marginal product equals the wage.