Question

Define marginal productivity and explain the three reasons why marginal productivity declnes as output increases.

Define short run marginal cost and explain why,using marginal productivity,that marginal cost increase as output increase(saying if one goes up the other goes down or writing an equation is Not and expalination and why)

Describe returns to scale ,and how it deffers from marginal productivity despite that both address increase in output.

Given that output is going to increase ,explain how a firm would increase output in the short run differently than in the long. Why would long run cost be less than short run cost when producing the same level of output.

Answer 1

1. Marginal productivity : It refers to the increase in amount of output by adding one more unit of a factor of production, all other inputs are held constant. When a firm increases one unit of factor of production (while keeping other factors constant),the marginal productivity increases to a certain level. After reaching a certain level, the marginal productivity starts declining because when a firm keeps on increasing the amount of a particular factor of production, the marginal cost also increases.And after reaching a certain level, marginal cost exceeds marginal revenue,thus the marginal productivity declines.

2. Short run marginal cost is the change in the short run total cost for small change in output. Marginal cost increases and marginal productivity decreases as output decreases . As mentioned in earlier part ,After reaching a certain level, the marginal productivity starts declining because when a firm keeps on increasing the amount of a particular factor of production, the marginal cost also increases.And after reaching a certain level, marginal cost exceeds marginal revenue,thus the marginal productivity declines. Therefore, as output increases , marginal cost also increases to hire more units of input.