When the law of diminishing returns applies, which of the following would rise with increased employment of labor, ceteris paribus?
A. Fixed costs
B. Marginal cost
C. Marginal revenue
D. The wage rate
When the law of diminishing returns applies, it means that as more units of a variable input, such as labor, are added to a fixed input, such as capital, the marginal product of the variable input will eventually start to decrease.
Now, let's analyze the options provided:
A. Fixed costs: Fixed costs are costs that do not change with the level of production or employment. Therefore, the law of diminishing returns would not directly affect fixed costs. The answer is not A.
B. Marginal cost: Marginal cost is the additional cost incurred to produce one more unit of output. When the law of diminishing returns applies and the marginal product of labor decreases, it means that each additional unit of labor is becoming less productive. As a result, the additional cost (marginal cost) of producing extra units will increase. Therefore, the answer is B.
C. Marginal revenue: Marginal revenue is the additional revenue earned from selling one more unit of output. The law of diminishing returns does not directly influence marginal revenue. The answer is not C.
D. The wage rate: The wage rate is the payment made to labor for their services. In the context of the law of diminishing returns, the wage rate is not directly affected. It may depend on other factors such as labor market conditions and bargaining power. The answer is not D.
Therefore, the correct answer is B. Marginal cost.