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Question 7 If the marginal product of labor for a firm decreases as more workers are hired, we know that there are still gains from specialization left to be exploited. the marginal cost of producing output is constant. all workers are paid the same wage. the gains from specialization are exhausted. the marginal cost of producing output is decreasing. Previous Next No new data to save. Last checked at 1:31pm Submit Q d) Prtscn Home FE 8

Answer 1

If marginal product of labor decreases when more workers are hired i.e.

$\frac{\partial MP_L}{\partial L} < 0$

then we have diminishing marginal productivity of labor. This means that when all other factors are kept constant and labor is increasing, initially it leads to increase in the productivity of the production process but after a certain amount of labor, it starts decreasing it.

So, the law of labor demand is to keep hiring workers until the point where the value of marginal product of an additional worker is equal to the marginal cost of hiring that worker. This leads to profit maximization.

Now if marginal product decreases by the addition of labor, we know that we have crossed the point of profit maximization and all the gains from specialization have been exhausted.

Correct Ans - D