When a firm hires more workers while other inputs are fixed, what happens to the marginal product of labor?

When a firm hires more workers while other inputs are fixed, what happens to the marginal product of labor?

• A. MP_L rises due to specialization.
• B. MP_L remains constant.
• C. MP_L declines due to diminishing returns.
• D. MP_L becomes equal to average product.

Answer: (C)

When some inputs are fixed, adding more workers eventually yields smaller and smaller increases in output. This is the idea of diminishing marginal returns: with capital (or other inputs) fixed, each additional worker has less of the fixed input to pair with, often leading to crowding, coordination problems, and less productive use of the fixed resources. So the marginal product of labor falls as more workers are hired. Early on, specialization can raise MP_L, but with the fixed inputs, that effect is temporary and eventually offset by the fixed resource constraint. MP_L is not constant, and it isn’t generally equal to average product except at a specific, uncommon point.

When some inputs are fixed, adding more workers eventually yields smaller and smaller increases in output. This is the idea of diminishing marginal returns: with capital (or other inputs) fixed, each additional worker has less of the fixed input to pair with, often leading to crowding, coordination problems, and less productive use of the fixed resources. So the marginal product of labor falls as more workers are hired.

Early on, specialization can raise MP_L, but with the fixed inputs, that effect is temporary and eventually offset by the fixed resource constraint. MP_L is not constant, and it isn’t generally equal to average product except at a specific, uncommon point.