Question

Why is it that, in the short-run, after a certain number of workers has been hired, output increases by less and less with each additional worker hired? Illustrate your answer with an example. Would there be any circumstances under which this phenomenon would not occur? (in a written text please, not a pic)

Answer 1

Under short run ,total output first increases at increases at increasing rate than increases at decreasing rate becomes maximum and after that starts decreasing with employment of additional labour.

It is known as "law of variable proportion" or " returns to factor". Under short run ,one factor remains fixed.

It happens because of following reasons:

1)During initial level of labour employment ,the employment of labour which is variable factor will utilise fixed factor which will increase TP and marginal product.

It means additional labour is producing more than previous labour.

But after a limit fixed factor will be completely utilised and employment of more labour will not increase TP.

2) when more labour will be employed , the efficiency of labour will increase because they will get enough leisure time .With more no of labour ,specialisation also becomes possible .This will increase Total product.

3) Better coordination between fixed and variable factor will increase total product upto a certain level.

Keep on employing more labour will turn the optimal combination of fixed and variable factor into less optimum which will decrease the level of output.

The capacity of fixed factor to utilise variable factor decreases and so total product.

For example : Excess number of labour employed on land will not increase output because land is fixed with its limited capacity.

Thus,output will increase till the combination of fixed and variable factor (labour) remains optimum after that MP will start falling and becomes negative which will decrease total product.

Following are the circumstances when this will not happen:

If all the factors varies i.e no factor remains fixed.

If technology changes than output will not decrease.