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

Question

Quizplus · Accepted Answer

Diminishing marginal product means that each additional unit of labor produces a lower output. Therefore, in order to produce the same amount of output, the firm must employ more labor. As the price of labor is constant, this means that the firm's variable costs will increase, leading to an increase in average variable cost.

If the Price of Labor Is Constant and a Firm