Question

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:________.

a) will increase (the MC curve will shift up).
b) is at its maximum.
c) will be unchanged.
d) will decrease (the MC curve will shift down).

Answer 1

D. will decrease (the MC curve will shift down).

Step-by-step explanation:

When the marginal product is increasing, the total product increases at an increasing rate. If a business is going to produce, they would not want to produce when marginal product is increasing, since by adding an additional worker the cost per unit of output would be declining.

At a higher real wage, workers are induced to work more. When workers work more, output increases. Thus, when the price level increases, output also increases because of worker-misperception.

Marginal Cost is the increase in cost caused by producing one more unit of the good. The Marginal Cost curve is U shaped because initially when a firm increases its output, total costs, as well as variable costs, start to increase at a diminishing rate. Then as output rises, the marginal cost increases.