In the context of marginal analysis, why does the marginal product (MP) of labor initially increase as more units of labor are added to a fixed amount of capital?

• A. Because the total product decreases with each additional worker
• B. Because the law of diminishing returns does not apply at any level of production
• C. Because each additional worker always has more skills than the previous one
• D. Because the fixed capital is utilized more efficiently as additional workers are employed

Answer: (D)

Verified step by step guidance

1. Understand the concept of marginal product (MP) of labor, which measures the additional output produced by adding one more unit of labor while keeping other inputs constant.
2. Recognize that when labor is initially added to a fixed amount of capital, workers can specialize and divide tasks, leading to more efficient use of the capital and increasing the marginal product.
3. Note that this initial increase in MP occurs because the fixed capital is underutilized at first, so adding workers helps to better exploit the existing capital resources.
4. Recall that the law of diminishing returns states that after a certain point, adding more labor will lead to smaller increases in output, but this does not apply at the very beginning when capital is not fully utilized.
5. Conclude that the marginal product of labor initially rises due to improved efficiency and specialization, not because of changes in worker skills or a decrease in total product.