Labour is a firm’s only variable input, and each worker is paid Rs 60. The 3rd worker adds 20 units of output and the 5th worker adds 6 units. Roughly what is the cost of one extra unit of output when it is produced by the 3rd worker, and when it is produced by the 5th worker?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 3 and Rs 10
One worker costs Rs 60. If that worker adds MP units, one extra unit of output needs 1/MP of a worker, so it costs about wage ÷ MP.
Given:
Wage = Rs 60 per worker
MP of the 3rd worker = 20 units
MP of the 5th worker = 6 units
\( \displaystyle \text{3rd worker: } \frac{60}{20} = 3 \)
\( \displaystyle \text{5th worker: } \frac{60}{6} = 10 \)
The extra unit costs about Rs 3 and then Rs 10. As the marginal product falls, each extra unit needs more labour, so its cost rises.
Option (1) Rs 20 and Rs 6 — these are the marginal products themselves, not costs.
Option (2) Rs 10 and Rs 3 — the two costs are in the wrong order.
Marginal product and marginal cost are different: marginal product is the extra output from one more worker; marginal cost is the extra cost of one more unit of output.
NCERT (2026-27): “3.7.1 Short Run Costs Let us now look at the SMC curve. Marginal cost is the additional cost that a firm incurs to produce one extra unit of output. According to the law of variable proportions, initially, the marginal product of a factor increases as employment increases, and then after a certain point, it decreases. This means initially to produce every extra unit of output, the requirement of the factor becomes less and less, and then after a certain point, it becomes greater and greater. As a result, with the factor price given, initially the SMC falls, and then after a certain point, it rises. SMC curve is, therefore, ‘U’-shaped. …” |