If the price of labor is constant and a firm experiences diminishing marginal product, then its
A) marginal costs increase.
B) marginal costs decrease.
C) fixed costs increase.
D) total costs decrease.

Question

Quizplus · Accepted Answer

Diminishing marginal product means that each additional unit of labor hired contributes less to total output than the previous unit. In other words, the marginal product of labor decreases as more labor is hired. Since the price of labor is constant, this means that the cost per unit of output (marginal cost) will increase as the firm hires more workers. Therefore, A is the correct answer as marginal costs increase.

If the Price of Labor Is Constant and a Firm