My textbook writes this on marginal cost:
"The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the increase in output will be at a decreasing rate. Each variable unit produces less when diminishing returns are occurring, so the production of extra units of output will require more of the variable inputs, so MC must increase."
I've got some questions about this
- What is meant by variable unit?
- Does marginal cost increase because there is more variable input, or does each worker become less productive when there are too many workers, so there needs to be more variable inputs (so increasing the variable input doesn't decrease productivity, it increases because more input is needed when the workers are less productive).