Question

assume the marginal product of labor first rises, reaches a maximum, and then falls. if the average product of labor is falling, which of the following is true?

Answer 1

The scenario implies that the firm is in the stage of diminishing marginal productivity, with each additional worker contributing less to output due to fixed capital limitations. This is inefficient for the firm as it leads to a decline in profits if they continue to hire past the point of maximum marginal product.

Step-by-step explanation:

When the marginal product of labor first increases, reaches a peak, and then begins to decline, and the average product of labor is falling, this indicates that the firm is experiencing diminishing marginal productivity. At the point where marginal product is at its highest, additional workers contribute the most to the overall output. However, as more workers are hired beyond this point, the fixed capital becomes a constraint, causing the additional output produced by each extra worker to decline.

The situation described in the question symbolizes a point where the firm has hired workers beyond the number that maximizes the marginal product. Given the first rule of labor markets, a firm seeks to maximize profits by not paying more for a worker than the value they add through their marginal productivity. Therefore, if the firm continues to hire past this point of diminishing returns, it will lead to inefficiencies and potentially reduced profits.

Answer 2

If the average product of labor is falling, it implies that the marginal product of labor must be falling (Choice C), because the marginal product would have to be less than the average product for the average to decrease.

When analyzing the relationship between the marginal product of labor (MP) and the average product of labor (AP), we understand that MP represents the additional output produced by one more worker, while AP is the total output produced divided by the number of workers. If the marginal product of labor first rises and then falls, and we are told that the average product of labor is falling, the correct statement from the options provided would be C) The marginal product of labor must be falling. This is due to the fact that for the average product to decrease, the marginal product must be less than the average product.

When AP is declining, the MP must be less than the AP because if MP were greater than AP, the average would rise. Therefore, we can deduce that the MP is not greater than the AP, the level of output is not necessarily at its maximum, the MP is not necessarily negative, and the AP may not have yet reached its maximum. The key indicator here is the effect of the additional worker on the AP, which declines only when the MP is less than the current AP.

Complete Question:

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true?

A) The marginal product of labor is greater than the average product of labor.

B) The level of output produced must be at its maximum.

C) The marginal product of labor must be falling.

D) The marginal product of labor must be negative.

E) The average product of labor has not yet reached its maximum.