In the short run, the marginal product of labor is inversely related to
(A) economic profit
(B) marginal utility
(C) average fixed cost
(D)average product of labor
(E) marginal cost
The correct answer and explanation is:
Correct Answer: (E) Marginal Cost
Explanation:
In the short run, the marginal product of labor (MPL) refers to the additional output produced by employing one more unit of labor, keeping other inputs (like capital) constant. The marginal cost (MC) is the additional cost of producing one more unit of output.
There is an inverse relationship between the marginal product of labor (MPL) and the marginal cost (MC) because: Marginal Cost (MC)=Wage Rate (w)Marginal Product of Labor (MPL)\text{Marginal Cost (MC)} = \frac{\text{Wage Rate (w)}}{\text{Marginal Product of Labor (MPL)}}
This formula shows that as the marginal product of labor increases, the marginal cost of production decreases, and vice versa.
Why the Relationship is Inverse:
- When workers become more productive, each additional unit of output requires less labor and therefore costs less to produce.
- Conversely, if the marginal product of labor declines (due to the law of diminishing returns), then more labor is needed for each additional unit of output, increasing the marginal cost.
Incorrect Answer Explanations:
- (A) Economic profit: Not directly tied to MPL. It’s the difference between total revenue and total cost.
- (B) Marginal utility: Relates to consumer satisfaction, not production input/output.
- (C) Average fixed cost: Fixed costs don’t change with labor or output; they’re spread over more units.
- (D) Average product of labor: While related to MPL, they are not inversely tied. Both can increase or decrease together depending on the stage of production.
Conclusion:
In the short run, as firms add more labor to fixed capital, they eventually experience diminishing marginal returns, which lowers the marginal product of labor and raises the marginal cost. Hence, (E) marginal cost is the correct answer due to this inverse relationship.