Question

When the marginal product of labor curve is decreasing, the average product of labor curve?

1) Must be decreasing
2) Must be flat
3) May be increasing or decreasing
4) Must be increasing

Answer 1

When the marginal product of the labor curve is decreasing, the average product of the labor curve may increase or decrease depending on whether the marginal product is still above or has fallen below the average product of labor.

Step-by-step explanation:

When the marginal product of the labor curve is decreasing, the average product of the labor curve may be increasing or decreasing. This is because the marginal product of labor measures the additional output that comes from hiring one more worker, and when it starts to decline, it indicates that each additional worker is contributing less output than the worker before them. However, the average product of labor takes into account the total output produced by all workers up to that point and divides it by the number of workers. So, as long as the marginal product of labor is greater than the current average, even if it is decreasing, the average product can still be rising. It will only start to decrease if the marginal product drops below the current average product. This is illustrative of the general rule of diminishing marginal productivity, which states that as a firm employs more labor, eventually the amount of additional output produced declines.