What is the connection between marginal costs and marginal product?
In Economics, the limit costs are the total cost of producing one additional unit of product or performance. The marginal product is another output generated by one additional unit of input, such as another worker. The marginal costs and the marginal product are connected to each other: as one increases, the other will automatically decrease in proportion and vice versa. This law states that once a person continues to add sources or inputs to production, the cost of the unit will fall first, then from below and eventually start to rise again. For example, the company can add a new worker to production operations. This new employee helps the company to increase its overall performance and can also increase the marginal product. However, after too many workers have been added, employees may be wasting time for use of tools and equipment, or simply pushing each other, resulting in higher marginal costs.
Given an inverse relationship betweenThe marginal costs and the product will always be a marginal product at the maximum level, as well as marginal costs reach its minimum point. The opposite is also true where the marginal product is at its minimum level, as marginal costs reach the maximum level. Graphically, these two are illustrated as mirror images of each other. If the marginal product is at the highest level and marginal costs are at the lowest level, reducing revenues will begin and the limit costs will begin to rise.
Limit costs are equal to the cost of hiring another worker or adding an input unit, divided by the marginal product of this worker or unit or input. If each new worker costs $ 10 USD (USD) and increases production by 10 units, the employee's limit costs can be calculated as $ 10 USD divided by 10 units: 1 USD per unit.
10. A hired company still costs $ 10, but can only be able to produce another five units due to the overfilling of the production floor. His boundary nAid can be calculated as $ 10 divided by five units or $ 2 per unit. These higher marginal costs are caused by the Reduction Act. In the long run, it may be possible to affect marginal costs and marginal product by expanding capacity and adding new machines, equipment or floor space.