[MUSIC] So let's think how the firm's costs will look like. And to do that, let's think a little bit about a process of manufacturing something. Suppose we're making tee shirts. As we increase labor, the output, the quantity that the firm is producing will of course increase. But what happens to the extra output that the extra worker provides. As we increase labor, will each worker be able to provide the additional units exactly equal to the previous worker? Well, our assumption is that this is probably not the case. In the beginning it's probably the case that as we increase labor. The output increases in greater, greater amounts in other word the marginal output is increasing. Why is this the case because we have some gains from specialization? When we have two workers we can actually make more than twice what the one worker can make. So again we have some gains from specialization and because of that, the marginal output is actually increasing. But past a certain point, those gains of specialization disappear, and once they disappear, we hit a bottleneck, and from that point on, we have diminishing marginal productivity. And what that means is that the additional productivity of the additional worker actually starts to go down. This does not mean that the workers aren't making t shirts, they are. It just means that the contribution of the additional worker becomes smaller and smaller. Again, why? Because any gains from specialization have already been utilized. And now as you hire more workers they can help, but that ability to help gets smaller and smaller. So again, my assumption is that if we draw the marginal productivity of labor, we have an upward sloping part because of gains from specialization. Then a downward sloping part due to the law of diminishing marginal productivity.