Final answer:
Increasing marginal productivity of labor indicates each additional worker is contributing more to output than the prior one, initially decreasing variable and marginal costs. The trend typically reverses after a point, leading to diminishing returns and rising costs.
Step-by-step explanation:
Having an increasing marginal productivity of labor means that each additional unit of labor (worker) is producing more output than the previous one. This is in contrast to diminishing marginal productivity, which is more common and occurs when each additional unit of labor contributes less to overall production due to fixed inputs (like land).
In terms of costs, when marginal productivity is increasing, variable costs initially increase at a decreasing rate because it costs less to produce each additional unit as workers become more productive. Consequently, the marginal cost, which is the cost of producing one more unit of output, decreases with increased productivity.
However, this trend of increasing productivity cannot continue indefinitely, and eventually, it shifts toward diminishing returns, where more labor leads to less increased output and pushes variable and marginal costs to rise at an increasing rate. Analyzing these costs on a per-unit basis offers valuable insights into the firm's cost efficiency and helps in making informed production decisions.