Question

explan why the marginal product of labour initially increases as more workers are hired and then eventually begins to fall

Answer 1

Marginal product of labor is the extra units of output produced with increase in the amount of labor units. Normally, when all other factors of production are held constant, the marginal product of labor should increase with the increase of labor units, in what is known as the increase in marginal returns. This will go on until either capital or materials begin to reduce, and the marginal product of labor would begin to reduce at this point regardless of any increase in labor units, in what is known as diminishing marginal returns. Any further increases in labor will result in negative marginal returns in what is known as negative marginal returns.

This is basically due to law of diminishing marginal productivity.

• Diminishing marginal productivity typically occurs when advantageous changes are made to input variables affecting total productivity.
• The law of diminishing marginal productivity states that when an advantage is gained in a factor of production, the productivity gained from each subsequent unit produced will only increase marginally from one unit to the next.
• Production managers consider the law of diminishing marginal productivity when improving variable inputs for increased production and profitability.