Question

Microeconomics:

If a company switches full-time workers to part-time involuntarily, how will that affect the company's marginal product of labor? How will it affect their total cost of production and marginal cost of production? How does it related to Efficient Scale and Profit Maximization? Overall, do you think this would be a good policy for a company?

Answer 1

As a company switches full time workers to part time involuntarily then this will reduce wage rate of workers and since the change is involuntary this will cause an decrease in the company's marginal product of labor because of fall in labor productivity since the change is caused involuntarily. A reduction in the productivity of labor will reduce the marginal product of labor.

A fall in the marginal product of labor will increase the marginal cost of production because marginal product of labor and marginal cost of labor are negatively related to each other. The increase in the marginal cost of production will increase total cost of production of the firm. As overall cost of production increases in the economy, the efficient scale of production gets decreased in the economy and profits maximization decreases or total level of profits in the economy decreases.

This is bad policy for a company because it causes an increase in the overall cost of production and reduces profits of the firm and also reduces the minimum efficient scale of production of the firm. Thus, the policy is bad for the economy.