Question

Consider a Cobb-Douglas production function: Y=KαL1−α. Which of

the two choices are correct?
We cannot tell the relationship between MPL and L.
MPL is constant over L.
MPL decreases as L increases

Answer 1

The correct choice is: "MPL decreases as L increases."

Step-by-step explanation:

In the Cobb-Douglas production function Y = K^α * L^(1-α), MPL (marginal product of labor) represents the additional output produced when an additional unit of labor (L) is added while holding capital (K) constant.

As L increases while K remains constant, the law of diminishing marginal returns applies. This means that initially, MPL may increase, but eventually, it starts to decrease. This occurs because as more labor is added to a fixed amount of capital, the productivity of each additional unit of labor diminishes, leading to a decrease in MPL.

Therefore, MPL decreases as L increases in the Cobb-Douglas production function.