Question

Labor productivity greatly rises as the firm sells more units of an information product or service because:

a) Fixed costs increase
b) Variable costs decrease
c) Economies of scale are achieved
d) Marginal utility decreases

Answer 1

Labor productivity increases as sales volume increases due to economies of scale, which spread fixed costs over more units and improve efficiency.

Step-by-step explanation:

Labor productivity greatly rises as the firm sells more units of an information product or service because economies of scale are achieved. This is due to the cost advantages that industries obtain due to size, which spread fixed costs over more units and improve efficiency. The concept of diminishing marginal productivity explains that as more units of labor are added, such as barbers in a barbershop, the additional output each new worker adds will eventually decrease. Therefore, option c) Economies of scale are achieved is the correct answer.