# Micro Econ Question

Dear all, I am just reading SS4, LOS17.c mentioning about TC, MC, TVC, TFC, ATC, AVC, AFC…I don’t understand clearly the way Schweser book explained about the MC curve. It is explained that “MC declines initially, then increases. At low output quantities, effecciencies are realized from the specialization of labor. However, as more and more labor is added, marginal cost increases. This is due to diminishing returns, which means that at some point, each added workers contributes less to total output than the previously added worker” Why does each added workers contributes less to total output than the previously added worker? I feel the conclusion in the book is not persuasive when it explained base on a clear intention example. You are appreciated to make clear my above confusion. Thank you so much for your help.

Ok let me try to explain… Say for example if this was a burger chain, if there was one worker to put together a burger he will need to do the 3 tasks of heating the bun, cooking the patty and putting the burger together. He will be ok at his job but never 100% efficient(constantly switching between tasks will lower his productivity). If you had 3 people each doing the 3 separate tasks, they will all become better at it because they can specialize. If at this time, you added a 4th worker, he would not have a task to do other than clean up after the 3, his marginal value is much less than the first 3 worker. Thus the point of lowest marginal cost is when you have 3 workers. To be able to output more burgers than 3 workers, you can either add a forth worker or another production line. Adding a 4th worker, as I have shown, does not increase output significantly and thus MC is up. Adding another production line still keeps marginal cost the same but double output. 1 worker: output 10 burgers an hour 2 workers: 22 burgers an hour 3 workers 36 burgers an hour *an extra worker increases productivity by 14 burgers* 4 workers: 40 burgers an hour *note to increase output by 4 burgers we have to add 1 full worker*

“each added workers contributes less to total output than the previously added worker” I believe it is because we are assuming that things like factories and machineries are fixed. So even if you have more workers, you are not going to add to output as much as when your labour is low.

tsttse explained it very good. Look at the graph and put below the graph from productivity. They match the wholl idea. So in the begining the first production factor (let’s say labor is added) is very productive so the marginal cost is very low MC=(TC1-TC0)/(Q1-Q0), because Q1-Q0 is very high. But as you see in the law of diminishing returns, as you add more and more from a factor, the output continues to increase, but with a decreasing rate. So the Q1-Q0 won’t be so high and the (TC1-TC0) will rise much faster so the MC will rise.