Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The price of the final product remains constant while more workers are added.
B
The marginal cost of production decreases as more workers are hired.
C
The firm experiences diminishing returns to labor as employment levels rise.
D
The demand for the firm’s product increases significantly with more output.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm hires more workers, each additional worker usually contributes less to the overall output than the previous one. This is known as diminishing marginal returns. For example, if a factory initially has five workers and produces 100 toys, adding a sixth worker might only increase production to 105 toys instead of 110. As more workers are added, they may get in each other's way or have less equipment to use, leading to a decrease in the extra revenue generated by each new worker. Therefore, the firm sees that the marginal revenue product of labor decreases as it increases the number of workers.
Detailed Explanation
As more workers are added, each worker contributes less to total output. Other options are incorrect because Some might think that keeping the product price the same means workers help equally; It's a common mistake to think that lower costs always mean better results.
Key Concepts
Factors of Production
Output Price Fluctuations
Employment Levels
Topic
Calculating Marginal Revenue Product
Difficulty
hard level question
Cognitive Level
understand
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