Law Of Diminishing Returns

• What is the law of diminishing marginal returns?

  It is a phenomenon that affects businesses in the short run when there is at least one fixed factor of production.
• What defines the short run in production?

  The short run is defined as a period of time where there is at least one fixed factor of production.
• Which factors of production are typically fixed in the short run?

  Capital and land are normally the fixed factors of production in the short run.
• How can a business increase output in the short run?

  A business can increase output in the short run by increasing labor, which is considered the variable factor of production.
• What does the law of diminishing returns state about total or marginal product?

  It states that in the short run, when variable factors like labor are added to fixed factors like land and capital, total or marginal product will initially rise and then fall.
• What is the relationship between the number of workers and output in the context of diminishing returns?

  • Initially, output increases with more workers.
  • Eventually, output per additional worker decreases.
  • This relationship is illustrated through marginal product and average product curves.
• What does TP stand for in the context of production?

  TP stands for total product.
• How is marginal product calculated?

  Marginal product is calculated as the change in total product divided by the change in the quantity of workers.
• How is average product calculated?

  Average product is calculated as total product divided by the quantity of workers.
• What do the marginal product and average product curves illustrate?

  • Marginal product initially rises and then falls.
  • Average product also rises initially and then falls.
  • Marginal product cuts average product at its highest point.
• What happens to marginal product when the fourth worker is employed?

  Marginal product starts to fall when the fourth worker is employed due to the law of diminishing returns.
• Why does marginal product decrease after employing the fourth worker?

  Marginal product decreases because fixed factors of production become a constraint on production, leading to workers affecting each other's output.
• What are the reasons for increasing returns to labor in the initial stages of employment?

  • Specialization among workers increases productivity.
  • Underutilization of fixed factors allows more efficient use of resources.
• What is the relationship between total product and marginal product?

  Total product is maximized when marginal product is 0.
• What happens to total product when marginal product is negative?

  When marginal product is negative, total product will start to fall.
• How does the law of diminishing returns relate to cost curves in the short run?

  • The law of diminishing returns can explain the shape of many cost curves.
  • As production increases, costs may rise due to diminishing returns.
• What is the significance of the law of diminishing returns for businesses?

  It helps businesses understand the relationship between labor input and output in the short run.