AREC 202 Lecture Notes - Marginal Product, Marginal Cost, Fixed Cost
25 Mar 2014
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As we add more labor, the benefits of the additional output are decreasing. Assume that the cost per labor unit is constant. If it is true that the marginal product of labor goes down as labor increases and labor is your only input, then producing more units will be increasingly costly. As we add more input, we expect more output. However, the effect of each input goes down as we add more and more. As we produce more, total costs go up. Since input"s mp goes down as input goes up, mc also rises. It is wednesday and you want to produce more today. These are variable costs in the short run. Other things are hard to increase in a day. These are fixed costs in the short run. Long run the time it takes for all input to become variable.
