Question

Explain why the marginal cost of production must increased if the marginal product of the marginal resource is decreasing.

Answer 1

Variable cost is largely associated with the cost of employing a variable input in the short run, it is possible to identify a connection between the marginal cost curve and the marginal product curve.

• The quantity of output in which marginal cost is at a minimum is the same quantity of output produced by the variable input when the marginal product of the variable input is at a maximum.
• Over the range of production in which marginal product increases and the variable input experiences increasing marginal returns, the marginal cost curve declines.
• Over the range of production in which marginal product increases and the variable input experiences decreasing marginal returns brought on by the law of diminishing marginal returns, the marginal cost curve is rising.

The correspondence between the marginal product and marginal cost curves indicates that the law of diminishing marginal returns is the key reason for increasing marginal cost. This further implies that the law of supply and the positively-sloped supply curve can be explained in the short run by increasing marginal cost. The marginal cost curve can be thought of as something of a "reflection" of the marginal product curve. This reflection is not a perfect image, but it captures the essence of the shape.