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Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

According to the definition of the short-run in Investopedia, the short-run, in economics, expresses the concept that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short-run does not refer to a specific duration of time but rather is unique to the firm, industry, or economic variable being studied. A key principle guiding the concept of short-run and long-run is that in the short-run, firms face both variable and fixed costs, which means that output, wages and prices do not have full freedom to reach a new equilibrium. Most businesses make decisions not only about how many workers to employ at any given point in time (i.e. the amount of labor) but also about what scale of an operation (i.e. size of factory, office, etc.) to put together and what production processes to use. In contrast, economists often define the short-run as the time horizon over which the scale of operation is fixed and the only available business decision is the number of workers to employ. Technically, the short-run could also represent a situation where the amount of labor is fixed and the amount of capital is variable, but this is fairly uncommon. The logic is that even taking various labor laws as given, it's usually easier to hire and fire workers than it is to significantly change a major production process or move to a new size of factory or office. In the short-run, one factor of production is fixed, e.g. capital. This means that if a firm wants to increase output, it could employ more workers, but not increase capital in the short-run (it takes time to expand.) Therefore in the short-run, we can get diminishing marginal returns, and marginal costs may start to increase quickly. Also, in the short-run, we can see prices and wages out of equilibrium, e.g. sudden rise in demand, may lead to higher prices, but firms don't have the capacity to respond and increase supply.


Tejvan Pettinger. (2015). Short-run, long-run, very long-run. Glossary Terms. Economics help blog. NY: Helping to Simplify Economic.
Retrieved from: http://www.economicshelp.org/blog/glossary/short-run-long-run-very-long-run/
Short-Run. Short-Run Definition | Investopedia
Retrieved from http://www.investopedia.com/terms/s/shortrun.asp#ixzz4KO1YXsri

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Related questions

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

The marginal product of labor is the increase in output resulting from a one-unit increase in the amount of labor employed. In my own opinion, the statement can be true in the sense that, as the firm produces more and more the cost of production has to come down first; that becomes constant or minimum and then starts to increase. The marginal cost is also a U-shaped curve that first falls then reaches a minimum and starts rising. The reason for rising marginal costs in the short term will only be an increase in the wages as the only factor which is variable in the short-run is labor whereas all factors are kept fixed, so the fixed costs will keep coming down. If you increase labor, you are going to suffer from diminishing marginal returns. And in the long-run, one will suffer diminishing returns from both input factors, labor, and capital.

The short-run cost relationship between the marginal product of labor and the marginal cost, the labor is variable. We have already established that there are diminishing marginal returns because the labor decreases. To increase output in the short-run, a firm must increase the amount used of a variable input. The marginal product reduces, not because consecutive workers are lesser, but because more workers are being used relative to the amount of equipment that is available, what they have left to work with. An example; if a clinic has only one dentist on duty and several assistants are available and we have a lot of patients waiting to see that doctor, the number of patients served by this office cannot increase without limit. The excess assistants will not be able to increase the number of patients in the office, not because they are not reliable or good enough, but because they cannot perform the doctor's job, and there is only one doctor in the office.

https://www.quora.com/Why-does-the-marginal-cost-curve-slope-upwards

I need a peer reply for this.

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

The marginal product of labor is the increase in output resulting from a one-unit increase in the amount of labor employed. In my own opinion, the statement can be true in the sense that, as the firm produces more and more the cost of production has to come down first; that becomes constant or minimum and then starts to increase. The marginal cost is also a U-shaped curve that first falls then reaches a minimum and starts rising. The reason for rising marginal costs in the short term will only be an increase in the wages as the only factor which is variable in the short-run is labor whereas all factors are kept fixed, so the fixed costs will keep coming down. If you increase labor, you are going to suffer from diminishing marginal returns. And in the long-run, one will suffer diminishing returns from both input factors, labor, and capital.

The short-run cost relationship between the marginal product of labor and the marginal cost, the labor is variable. We have already established that there are diminishing marginal returns because the labor decreases. To increase output in the short-run, a firm must increase the amount used of a variable input. The marginal product reduces, not because consecutive workers are lesser, but because more workers are being used relative to the amount of equipment that is available, what they have left to work with. An example; if a clinic has only one dentist on duty and several assistants are available and we have a lot of patients waiting to see that doctor, the number of patients served by this office cannot increase without limit. The excess assistants will not be able to increase the number of patients in the office, not because they are not reliable or good enough, but because they cannot perform the doctor's job ad there is only one doctor in the office.

https://www.quora.com/Why-does-the-marginal-cost-curve-slope-upwards

I need a peer reply for this.

Consider the various short-run cost curves.
(a) why is the total variable cost curve TVC shaped the way it is? In explaining, go back to the most basic assumptions about what happens when a firm produces output in the short run.
(b) When marginal cost MC is at its minimum value, what can we say about the nature of the marginal product of labor (MPL) curve(I.E., is it upward sloping or downward-sloping)? What is the logical basis for your conclusion?
(c) When average variable cost AVC is at its minimum value, what can we say about the nature of the marginal product of labor (MPL) curve (I.E., is it upward sloping or downward-sloping)? What is the logical basis for your conclusion?
(d) Suppose that, for a particular type of firm, the MPL is not diminishing, but it's also not increasing. What does the MCcurvefor this firm look like? Why might it make sense to think of the firm's capital being, say, a computer network, that multiple workers can use at the same time without slowing down the network?

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