Question

A typical firm’s production function gets flatter as the quantity of an INPUT increases and its total-cost curve gets steeper as the quantity of OUTPUT produced rises. Qualify this statement by defining what “the property of diminishing marginal product means” and talking about how it determines the two above-mentioned features.

Answer 1

Ans) A firms production function gets flatter after a certain level. It is because of diminishing marginal product. Diminishing marginal product means that as we employ more and more workers, the additional product declines with each additional worker. For eg- suppose you have a bakery and earlier you had only two workers. To increase production you employed five more workers and the production increased but after this as you started employing more workers, your marginal product starts declining. Why? It is because now as you employ more workers, it started congesting the work place. Same utensils rotated to different departments which started reducing the efficiency. And hence marginal product starts declining, making production function flatter.

Due to same reason i.e diminishing marginal product, total cost curve becomes steeper. Initially with increasing output firm gets efficient but after a certain level, diminishing marginal product becomes active and output per worker starts declining. Suppose after 5th worker the output per worker starts declining but you still have to pay lets say $100 to each worker. Hence, total cost curve starts becoming steeper.