Question

If marginal productivity of labor is falling, by hiring another unit of labor (all else held the same) we know that:

A

Average productivity must be falling.

B

Marginal cost must be falling.

C

Marginal cost must be rising.

D

Average cost must be falling.

Answer 1

Marginal Productivity falling means that additional unit of worker can now produce lesser output. Thus in order to produce 1 additional unit of output more(than before) workers will be hired and hence Cost incurred in order to purchase this additional output will increase and this is what we called Marginal Cost. So, Marginal Cost will increase and hence option (C) is the correct answer and (B) is incorrect..

Note : When Marginal Productivity falls, initially Average product rises and then after some time(point where Marginal Product = Average Product) Average Product starts to fall. Thus Falling of average productivity is not necessary and thus option (A) is incorrect

When Marginal Cost rises, initially Average Cost falls and then after some time(point where Marginal Cost = Average Cost) Average Cost starts to rises. Thus Falling of average cost is not necessary and thus option (D) is incorrect.

Hence, the correct answer is (C) Marginal cost must be rising.