Question

GM cuts jobs at its Australian manufacturing unit GM will cut 500 jobs, or about 12% of its workforce, at its Australian plant because of a sharp fall in demand for its locally-made "Cruze small car. Source: The Wall Street Journal, April 8, 2013 As GM cuts its workforce, how will the marginal product and average product of a worker change in the short run? Suppose that before the cuts the marginal product of GM workers is below their average product. As the number of workers decreases, the marginal product of a GM worker and the average product of a GM worker in the short run. increases; decreases O does not change; does not change D decreases; decreases D increases; increases D decreases; increases

Answer 1

Increase, increase

Marginal product is the increase in the total output with the increase of one unit of labour. Marginal product increases first with increase in the unit of labour, diminishes and then becomes zero. But if the manufacturing unit reduces the number of labourers when marginal productivity starts falling ,MP will increase.Average product is output divided by number of units of labour,Average product will also increase with cut in labour.

For eg In a manufacturing firm , the employment of five workers produce total product of 70 units,six workers produce total product of 84 units and seven workers produce total product of 91 units, average product of 7 workers will be 13 units(91 divided by 7) and marginal product of seven workers will be 7 units (91-84). If the firm cuts labour to 6, then TP will become 84, AP will increase to 14(84 divided by 6) and MP will increase to 14(84-70 which is the total product of fifth unit)