Answer to Question #269342 in Microeconomics for Anonymous

Question

why the cost of producing output increases as the number of labor increases ? because the wage of the labor will be equal to marginal product of that labor hence for deminishing marginal returns the producer have to pay only for the output that the extra unit of labor have produced so how does the cost increase? If for deminishing marginal returns two labors produces one unit of output but as the real wage will be equal to marginal product of labor so each of the labor would be paid for 50% of the value of the output....So how does the cost of production increase with increasing labor input?

Answer 1

The cost of producing output increases as the number of labor increases because the wage of the labor will be equal to marginal product of that labor hence for diminishing marginal returns, the producer has to pay only for the output but as the real wage will be equal to marginal product of labor.

Thus, the cost of production increases with increase in labor input because, with an increase in labor input, it means that the cost of producing additional units in the production process will be increased so as to cover for the additional labor costs. Hence, the overall production cost will increase.