Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in marginal product leads to higher labor costs
B
An increase in marginal product can lead to decreased labor costs
C
Marginal product does not affect labor costs
D
Labor costs only affect marginal product and not vice versa
Understanding the Answer
Let's break down why this is correct
Answer
In economics, the marginal product refers to the additional output produced when one more unit of labor is added, while labor costs are the expenses associated with hiring that labor. When a business hires more workers, it hopes to increase production, but the relationship can change. Initially, adding more workers often leads to a higher marginal product, meaning the extra output is significant. However, if too many workers are added, the marginal product may decrease because there are not enough resources for everyone, making each additional worker less productive. For example, if a bakery hires one more baker and produces 20 more loaves of bread, but hiring a second baker only increases production by 10 loaves, the marginal product is declining, which affects how much the bakery is willing to pay for labor.
Detailed Explanation
When the marginal product increases, it means each worker is producing more. Other options are incorrect because This idea suggests that higher productivity means you pay more for workers; This option thinks productivity has no effect on costs.
Key Concepts
labor costs
Topic
Marginal Product and Labor Costs
Difficulty
easy level question
Cognitive Level
understand
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