Answer to Question #306032 in Microeconomics for katrichie

Question

a) Explain the relationship between marginal cost, wage and marginal product of labour  (9).  

b) Derive the relationship between marginal cost, wage and marginal product of labour  (16)  

Answer 1

a) Marginal cost is the cost of producing additional quantity. It is related to wages because the cost of producing additional unit of quantity will lead to more hours and labor being used, and this leads to increase in the wages. Marginal product of labor is connected to marginal cost and wages in that adding a unit of labor leads to an increase in marginal cost and also increases the wages.

b) The cost of producing additional quantity (marginal cost), when increased leads to increase in wages since it will require more time and laborers to produce additional quantities. This in turn lead to an increase in marginal product of labor since it is the total production when one additional unit of labor is added.