What is the law of diminishing marginal productivity? How does the law of diminishing marginal productivity...

What is the law of diminishing marginal productivity? How does the law of diminishing marginal productivity affect the cost of productions? Provide an example from your workplace.

Expert Solution

The law of diminishing marginal productivity states that when any one factor of production is increased, the Overall productivity of a firm increases initially but it gradually decreases as more units are added.
According to the law of diminishing marginal productivity, when more and more units of a good are added, the marginal cost of producing an extra unit of a good and the average variable cost will keep increasing due to the additional cost incurred.
This will cause the marginal cost curve to slope upwards continuously towards right.
For example :- when more and more workers are added in the workplace, the production will increase at a higher pace until a certain level is reached. This will increase the marginal cost of production.
After a certain point is reached, even when the workers are increased, the productivity level will start to increase at a slower pace and eventually decline.

Rahul Sunny answered 1 year ago

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