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If average variable cost is decreasing, marginal product of labor is less than average product of...

If average variable cost is decreasing,

marginal product of labor is less than average product of labor.

marginal product of labor exceeds average product of labor.

marginal product of labor equals average product of labor.

none of the other answers can be selected without additional information.
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Answer #1

Answer : Option b) marginal product of labor exceeds average product of labor

When output level is small, average variable costs keep decreasing and both marginal product and average product of labor keeps increasing. After a while when output level is intermediate, average variable cost is still decreasing, but marginal product of labor starts decreasing (that is where the diminshing returns to labor start to set in) while average product of labor keeps increasing. But all throughout this while when average variable cost is decreasing, marginal product of labor exceeds the average product of labor.

Only when average variable cost starts to increase, the average product exceeds the marginal product.

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