Question

Paul realizes that if he employs an additional bike builder, then he will be able to...

Paul realizes that if he employs an additional bike builder, then he will be able to increase the number of bikes built in his bike shop by 15 bikes per day. The daily salary he will need to pay the bike builder is $200. How much is the cost for an additional bike? Describe the general relationship between the marginal product and marginal cost curves.

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Answer #1

Cost for an additional bike = $200 / 15 = $13.33

When marginal product increases, the marginal cost decreases and when marginal product decreases, the marginal cost increases. According to law of variable proportion, in the short run, keeping some factors as fixed in production process, when more and more units of a variable factor increases, marginal product increases at an increasing rate, then marginal product increases at an decreasing rate and after some time marginal product becomes negative.

Thus, the general relationship between the marginal product and marginal cost curve is that these two curves moves in opposite direction.

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