Recall the application about idle capital and short-run marginal cost with a firm that simply digs holes and has a fixed amount of capital (10 standard shovels)and can vary the number of workers,Why is the marginal cost constant for the first 10 units of output?

Question

Quizplus · Accepted Answer

The marginal cost is constant for the first 10 units of output because the firm has a fixed amount of capital (10 standard shovels) and can vary the number of workers. Since the firm does not have enough capital to experience diminishing returns, the marginal product of labor remains constant, resulting in a constant marginal cost.

Recall the Application About Idle Capital and Short-Run Marginal Cost