Answer to Question #122047 in Macroeconomics for sehrish

Question

Following is information on the production levels of three different firms. Firm A is currently
producing at a quantity where it is experiencing increasing returns. Firm B is currently
producing at a quantity where it is experiencing diminishing returns. Firm C is currently
producing at a quantity where it is experiencing negative returns.
a. If each of the firms cut back on its labor force, what will happen to its marginal
product of labor? And why?
b. If each of the firms adds to its labor force, what will happen to its marginal product of
labor? And why?

Answer 1

a.As the number of employed workers decreases, the marginal product of labor increases.

b.As the number of hired workers increases, the marginal product of labor decreases

With fewer employees being hired, the cost of the marginal product exceeds the salary, therefore, an invitation to work of another collector increases the company's profit. With a larger number of employees hired, the cost of the marginal product is less than the salary, so the marginal worker does not make a profit