What happens to the Marginal Product of Labor as the amount of labor increases, given fixed capital?

The correct answer indicates that the Marginal Product of Labor (MPL) diminishes as the amount of labor increases, given fixed capital. This phenomenon is rooted in the principle of diminishing returns, which states that as more units of a variable input (in this case, labor) are added to a production process that has fixed inputs (such as capital), the additional output generated from each additional unit of labor will eventually start to decline.

Initially, as one or two additional workers are hired, the total output may increase at an increasing rate, largely because the existing capital can accommodate the extra labor effectively. However, after a certain point, the benefits of adding workers begin to diminish. The fixed amount of capital limits the productive capacity of labor, leading to situations where each additional worker has less capital to work with than their predecessors. For instance, if a factory has a set number of machines, an increased number of workers may lead to overcrowding or inefficiencies, resulting in a lower output per worker.

This concept is critical in macroeconomic theory as it helps explain how productivity changes in relation to labor and capital. Understanding this relationship allows economists to analyze labor demand, employment rates, and overall productivity within an economy.