Which of the following is correct? a) There is no relationship between MP and MC. b) When AP is rising, MC is falling, and when AP is falling, MC is rising. c) When MP is rising, MC is rising, and when MP is falling, MC is falling. d) When MP is rising, MC is falling, and when MP is falling, MC is rising.

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Business

Ashton Miles

20 July, 18:53

Which of the following is correct? a) There is no relationship between MP and MC. b) When AP is rising, MC is falling, and when AP is falling, MC is rising. c) When MP is rising, MC is rising, and when MP is falling, MC is falling. d) When MP is rising, MC is falling, and when MP is falling, MC is rising.

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Answers (1)

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Angelique Hogan · Answer 1

D. When MP is rising, MC is falling, and when MP is falling, MC is rising.

Explanation:

There exist an inverse relationship between Marginal Cost and Marginal product. Marginal cost refers to the total cost needed to produce an additional unit of output. Or rather the change in total cost due to changes in the quantity of products or outputs.

Marginal product refers to the extra output generated by one additional unit of input.

Take for instance, If an organization has to pay more money to each worker compared to the number of output that each worker makes, its labor cost for each item increases, so its cost to make each item will be higher. So in this situation, as the marginal cost increases, the marginal output actually decreases. This is actually due to the Law of diminishing Returns.