"as we increase output, the cost of each additional unit rises." can someone explain??

Question

is it because like, if a company makes more money, it has to employ workers.


but why does the cost rise?

ps. that quote is supposed to illustrate the idea of marginal cost

Answer 1

It depends on what "cost" you are talking of. Remember you have various "cost"s in economics.
If you are talking of "total cost" yes it increases as more raw materials are used.
If you are talking of "average cost" it will decline first, level off then increase. This is because of the Law of Diminishing returns.
"Fixed costs" will remain fixed.
Remember, that as production increases the company will use the resources it has more efficiently before it increases its resources.

Answer 2

The marginal cost is the cost of producing an extra unit of output.

Due to diminishing marginal returns of inputs, (this is the fact that using one more unit of input produces less additional output than the last), it means that the extra cost of producing an extra unit of output must increase.

Think about an office where everybody has their own computer, and they need it to work. Employing one more person is not going to increase the total output production (marginal labour productivity) much, but it still costs the same as the last person to hire them, so to increase output by employing one more person will mean that the cost of the last unit (marginal cost) will have to increase

Alternatively, think of a person wrapping presents at full speed, full time. To increase the amount of presents wrapped by that person would require them to work longer. This would mean paying them overtime, and therefore would mean that it costs the company more to produce the last unit of output.

Note that these may be considered extreme cases, but this was done in order to simplify the explanation.

Answer 3

Hi how are you let me see if I can explain

In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.

If producing additional computers requires, for example, building a new factory, the marginal cost of those extra computers in the market includes the cost of the new factory.

(that is why the cost rises... you take into consideration what is the cost that comes from producing additional needed units) whether is labor or technology

Answer 4

As you utilize more of anything, you are increasing demand for it. Higher demand causes the producers to charge more for their product. If you are the only employer in town, and there is a lot of unemployment, workers will likely take whatever wage you offer, since it is better than what they can get elsewhere. If,however, you start hiring everyone in sight, workers will expect to get higher wages.

In the same way, when a company is hiring everyone in sight, it is likely to get less productive workers, since it can no longer only pick the best ones, so productivity declines.

The price of other inputs into production behaves in a similar way. People naturally use all of a resource that is easily obtained before they spend more to obtain that which is harder to reach, and once all the easily obtainable resource is taken, it costs more to continue production. Think about cattle ranching, for example. Cows were initially raised in Texas and Oklahoma, where the climate and vegetation were suitable for them. Now there are lots of cows being raised in Nebraska and other Northern states whose climates are not as good, and whose cost of production is higher. This happens in all sorts of resource markets, where as long as the cost is lower than the market price, people will try to expand into new areas.

Hope that makes sense.

Answer 5

true.
because as we increase output,
firm will be making returns,
firm will employ more labors to help support the increased DD of goods in the market,
the increase of hired labors means the firm needs to pay more (wages to the labor).

so, that's when the cost rises.

Answer 6

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