When a firm increases its short-run supplies only by hiring more labor,other inputs remaining unchanged,eventually:

Question

Quizplus · Accepted Answer

In the short run, increasing only the labor input while keeping other inputs fixed will eventually result in diminishing marginal returns, causing the production output to increase at a decreasing rate. This is due to the fact that additional units of labor will eventually lead to overcrowding and a limited amount of resources to work with, resulting in a decrease in marginal productivity. As a result, the cost of producing the good will increase, not decrease. The marginal productivity of fixed inputs will remain constant, and the average cost of producing the good will increase. The productivity of laborers may or may not increase depending on other factors such as training, experience, and technology used.

When a Firm Increases Its Short-Run Supplies Only by Hiring