In the short run marginal product of labor initially rises and then falls there may be two output levels where marginal revenue equals marginal cost. In this case how does a firm choose the appropriate output level?
A)choose the lower of the two output levels
B)choose the point where marginal costs falling
C)choose the point where average cost is minimized
D)choose the point where marginal cost is rising

Question

Quizplus · Accepted Answer

In the context of marginal revenue equaling marginal cost, firms typically choose the output level where the marginal cost is rising. This is because, in the short run, the initial increase in the marginal product of labor leads to decreasing marginal costs. However, as production increases further, diminishing returns set in, causing the marginal product of labor to fall and marginal costs to rise. The point where marginal revenue equals marginal cost and marginal cost is rising is typically associated with profit maximization, as it ensures that the firm is not producing in the inelastic portion of the demand curve, where additional units would lower profit.

In the Short Run Marginal Product of Labor Initially Rises