As a firm hires more labour in the short run, the
A) level of total product stays constant.
B) output per worker rises.
C) extra output of another worker may rise at first, but eventually must fall.
D) costs of production are increasing at a fixed rate per unit of output.

Question

Quizplus · Accepted Answer

In the short run, as more labour is hired, the extra output of another worker may initially rise due to the division of labour and specialization. However, eventually diminishing marginal returns set in and the extra output of another worker must fall. This means that the firm's output per worker (total product divided by the number of workers) will also eventually decrease, leading to higher costs of production per unit of output. Therefore, only option C accurately reflects the short-run relationship between labour and output.

As a Firm Hires More Labour in the Short Run