ECON 200 Lecture Notes - Lecture 18: Diminishing Returns, Marginal Cost, Marginal Product
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Diminishing marginal productivity of labor implies increasing marginal cost: In a t-shirt factory, for example, there are a fixed number of sewing machines and a fixed amount of space for the factory workers to do their jobs. If the laborers were to be paid a wage of /hour, this cost for labor would be the cost of the shirt, or, marginal cost. At a certain quantity of laborers added into the factory, there will be congestion on the factory floor and a shortage of sewing machines for the workers to use, and thus, the marginal cost of producing t-shirts rises. Here, the rising costs are in the intensive margin. As the mc of production of shirts rises, there will be rent. Rents with increasing costs at the intensive margin : Just as rents occur due to our inability to replicate resources (increasing costs at the extensive margin), rents can also occur due to increasing costs at the intensive margin.
