Multiple Choice
At which point on the total product curve do negative marginal returns occur?
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10. The Costs of Production
Marginal Cost
Multiple Choice
How is marginal cost related to marginal product?
A
Marginal cost is inversely related to marginal product: when MP rises, MC falls (MC = wage/MP if labor is the variable input).
B
Marginal cost equals the wage rate multiplied by marginal product (MC = wage × MP).
C
Marginal cost is independent of marginal product and depends only on fixed costs.
D
Marginal cost is directly proportional to marginal product: when MP rises, MC rises.
Verified step by step guidance1
Understand the definitions: Marginal Cost (MC) is the additional cost of producing one more unit of output, while Marginal Product (MP) is the additional output produced by one more unit of a variable input, typically labor.
Recall the relationship between labor input and output: If labor is the variable input, then the marginal product of labor (MP) measures how much extra output one more worker produces.
Express marginal cost in terms of wage and marginal product: Since the cost of hiring one more worker is the wage rate (w), and that worker produces MP additional units, the cost per additional unit of output is the wage divided by MP, which gives the formula \(MC = \frac{w}{MP}\).
Analyze the inverse relationship: Because MC is \(\frac{w}{MP}\), when MP increases (meaning each worker produces more output), the marginal cost of producing an additional unit decreases, and vice versa.
Conclude that marginal cost is inversely related to marginal product, which means that as marginal product rises, marginal cost falls.
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