Suppose we have a single-variable input production function such a Q=f(L), where

Question

Suppose we have a single-variable input production function such a Q=f(L), where L is the number of workers and Q the quantity of output per day. Workers are paid a flat salary of $200 per day. How will the labor cost per unit of output be affected if output is subject to
(a) diminishing returns (b) increasing returns?

How might the firm increase labor's average productivity?

On a related matter, suppose as production expands. the average productivity of labor increases by 25%. By how much will the labor cost per unit decline? ( It's NOT 25%!)

Explanation / Answer

Workers are paid a flat salary of $200 per day.

1) labour cost will increase since it will benifit less to company.

2) labour cost will decrease since it will benifit more to company.

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