Economics Essay Example | Topics and Well Written Essays - 500 words - 17

Economics - Essay Example Thus, for each of the input employed in order to produce a good, the resource should be able to increase the volume of production at the lowest possible cost. Logically, the lower the cost of producing the product the higher the productivity of the resource. Cost and productivity thus have an inverse relationship—when cost of manufacturing a unit of output is high, the productivity is low and conversely, the lower the production cost per unit the higher the productivity. In order to illustrate this point, take two workers who both assemble stuff toys for eight hours. Each of them is paid $10 an hour and the eight hour period will be paid $80. For simplicity’s sake, let us assume that the first worker can produce 8 stuffed toys within the working hours while the second can only produce 4. The first worker’s labor cost of producing a stuffed toy is $10 while the second is $20. Being able to produce at a lower cost, the first worker is more productive. The law of diminishing marginal productivity states that the â€Å"when the technology of production and some of the inputs are held constant and the quantity of a variable input increases continually, the marginal productivity of the variable input will eventually decline.† It should be noted that the law of diminishing marginal productivity assumes that only on input is increased while all others are held constant. This economic law can be proven by real world examples in the workplace where employees are put to work on certain projects with a constant level of resource. In a factory where people are employed to manufacture candles. Suppose that each day, 100 kg of waxes should be melted and turned into aromatherapy candles. Assigning one worker will undoubtedly contribute the highest return considering the cost of labor which is needed to transform the input into output. Adding a second employee will add more output, yet will not be as productive as the first since the