The Law of Diminishing Marginal Returns

Fixed factors and variable factorsTake this challengeShort run and long runThe input-output relationship in the short runThe law of diminishing marginal returns

are factors whose employment ________ (decreases) as output increases (decreases).are factors whose employment ______________ when output changes.Fixed factors and variable factorsFixed factorsfactory buildings, land, machineryincreasesraw materials, labour, fuel and electricityremains constantExamplesVariable factorsDefinition

Short run and long runA firm can increase its output by employing more _____________ only.A period when there are both ___________ and _____________.fixed factorsvariable factorsvariable factorsShort runLong runA period when all factors of production are _______.variableA firm can increase its output by increasing the use of _________.all factors

Assume there are two factors only: capital (fixed) and labour (variable). Technology is constant.Input-output relationship in the short runThe total product (TP) of labour is the total output produced by ______ in a ____________, holding ______ constant.period of timelabourcapital

Input-output relationship in the short runThe average product (AP) of labour measures the output per ___________, holding capital constant.unit of labourAverage product(units)4.005.006.677.006.806.335.715.004.333.70

Input-output relationship in the short runThe marginal product (MP) of labour measures the change in total product as a result of changing the employment of _______________, holding capital constant.Marginal product(units)MP of nth unit =_______________ _______________TP of n units- TP of (n - 1) unitsMP ________ initially but ________ eventually.increasesdecreaseslabour by one unit461086420-1-2

461086420-1-2

The law of diminishing marginal returnsAs more _____________ are added to a given quantity of fixed factors, marginal product eventually _____.variable factorsdrops

Why do diminishing marginal returns occur ?When more workers are added to a given amount of fixed factors, the fixed factors are ________________; so MP rises initially.more fully utilised Later, when more and more workers are added, there are eventually too many _______ relative to the amount of fixed factors.workers

Why do diminishing marginal returns occur ?When more workers are added to a given amount of fixed factors, the fixed factors are ________________; so MP rises initially.more fully utilised Efficiency will ______, leading to ______________.declinediminishing MP

Take this challenge 1

The shop: _____________ as the size of it remains unchanged even if more clothes are sold.fixed factorThe salespersons: ______________ as more of them are needed to provide services to more customers.variable factorElectricity: ______________ as more electricity is used along with longer business hours.variable factorTake this challenge 1

Take this challenge 2

The total product of n units = _________________________________________ _________________________________________MP of the 1st unit + MP of the 2nd unit + + MP of the nth unitTP4086136180216242256Take this challenge 2

The average product of n units = _______________________AP = TP / units of labourAP404345.34543.240.336.6Take this challenge 2TP4086136180216242256

Does the law of diminishing marginal returns apply to the factory?Take this challenge 2Yes / No, as more workers are added to a fixed quantity of tools, marginal product eventually increases / drops.AP404345.34543.240.336.6TP4086136180216242256

Take this challenge 3The following table shows the marginal product schedule of factory A: Which economic law does not hold as shown by the above data? Explain._____________________________________ as the MP eventually is increasing.The law of diminishing marginal returns