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Diminishing returns occur :
- a)when units of a variable input are added to a fixed input and total product falls.
- b)when units of a variable input are added to a fixed input and marginal product falls.
- c)when the size of the plant is increased in the long run.
- d)when the quantity of the fixed input is increased and returns to the variable input falls.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
Diminishing returns occur :a)when units of a variable input are added ...
Explanation:
Diminishing returns occur when the addition of units of a variable input to a fixed input leads to a decrease in the marginal product of the variable input. In other words, as more and more units of the variable input are added, the increase in output becomes smaller and smaller.
Key Points:
- Diminishing returns occur in the short run when at least one input is fixed and cannot be changed.
- The fixed input can be a physical constraint, such as the size of the plant or the amount of land available, or it can be a contractual or legal constraint, such as a fixed labor force.
- The variable input is the input that can be changed in the short run, such as labor or raw materials.
- The marginal product of a variable input is the additional output produced by adding one more unit of the variable input while holding other inputs constant.
- When diminishing returns occur, the marginal product of the variable input decreases as more units of the variable input are added.
- This means that each additional unit of the variable input contributes less to the total output than the previous unit.
- As a result, the total product of the variable input may still increase, but at a decreasing rate.
- Eventually, the total product may start to decline, indicating negative returns to the variable input.
Example:
Let's consider the example of a bakery. Suppose the bakery has a fixed amount of oven space (fixed input) and a variable input of labor (variable input). Initially, adding more workers increases the output of baked goods. However, as more workers are added, the marginal product of labor starts to decline. This means that each additional worker contributes less to the total output of baked goods. Eventually, if too many workers are added, the bakery may become overcrowded and the total output of baked goods may start to decrease.
Conclusion:
In conclusion, diminishing returns occur when units of a variable input are added to a fixed input and the marginal product of the variable input falls. This concept is important in economics as it helps explain how the productivity of inputs can change as more units are added. Understanding diminishing returns is crucial for businesses to optimize their production processes and make informed decisions regarding resource allocation.
Diminishing returns occur when the addition of units of a variable input to a fixed input leads to a decrease in the marginal product of the variable input. In other words, as more and more units of the variable input are added, the increase in output becomes smaller and smaller.
Key Points:
- Diminishing returns occur in the short run when at least one input is fixed and cannot be changed.
- The fixed input can be a physical constraint, such as the size of the plant or the amount of land available, or it can be a contractual or legal constraint, such as a fixed labor force.
- The variable input is the input that can be changed in the short run, such as labor or raw materials.
- The marginal product of a variable input is the additional output produced by adding one more unit of the variable input while holding other inputs constant.
- When diminishing returns occur, the marginal product of the variable input decreases as more units of the variable input are added.
- This means that each additional unit of the variable input contributes less to the total output than the previous unit.
- As a result, the total product of the variable input may still increase, but at a decreasing rate.
- Eventually, the total product may start to decline, indicating negative returns to the variable input.
Example:
Let's consider the example of a bakery. Suppose the bakery has a fixed amount of oven space (fixed input) and a variable input of labor (variable input). Initially, adding more workers increases the output of baked goods. However, as more workers are added, the marginal product of labor starts to decline. This means that each additional worker contributes less to the total output of baked goods. Eventually, if too many workers are added, the bakery may become overcrowded and the total output of baked goods may start to decrease.
Conclusion:
In conclusion, diminishing returns occur when units of a variable input are added to a fixed input and the marginal product of the variable input falls. This concept is important in economics as it helps explain how the productivity of inputs can change as more units are added. Understanding diminishing returns is crucial for businesses to optimize their production processes and make informed decisions regarding resource allocation.
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Diminishing returns occur :a)when units of a variable input are added ...
Diminishing returns occur when units of a variable input are added to a fixed input and marginal product falls.
Diminishing returns is an economic concept that refers to a situation where the increase in the production of a good or service starts to decrease after a certain point. In other words, it is the point at which the additional input of a variable factor of production results in a less-than-proportional increase in output.
Explanation:
To understand why diminishing returns occur, let's break down the answer into the following sections:
1. Variable and Fixed Inputs: In the short run, a firm has both variable and fixed inputs. Variable inputs are those that can be easily changed in the short run, such as labor, while fixed inputs are those that cannot be changed, such as capital or machinery.
2. Total Product and Marginal Product: Total product refers to the total amount of output produced by a firm using a specific combination of inputs. Marginal product, on the other hand, refers to the additional output produced by using one more unit of a variable input while keeping other inputs constant.
3. Relationship between Marginal Product and Total Product: Initially, as more units of a variable input are added to a fixed input, the total product increases at an increasing rate. This is known as the law of increasing returns. However, after a certain point, the total product starts to increase at a decreasing rate. This is where diminishing returns come into play.
4. Diminishing Marginal Returns: Diminishing returns occur when the marginal product of a variable input starts to decline. In other words, each additional unit of the variable input leads to a smaller increase in output. This happens because the fixed input becomes a constraint on the production process. For example, if a firm has a fixed amount of machinery, adding more workers to operate the machinery may lead to overcrowding or inefficiency, resulting in a decrease in marginal product.
5. Illustration: Let's consider an example of a bakery. Initially, adding more bakers to the existing equipment may increase the total number of loaves of bread produced. However, at some point, adding more bakers may lead to a crowded workspace, reducing the efficiency and resulting in a smaller increase in the total number of loaves produced. This is an example of diminishing marginal returns.
In conclusion, diminishing returns occur when the addition of units of a variable input to a fixed input leads to a decrease in the marginal product. This is a crucial concept in economics as it helps firms understand the optimal level of input usage for maximizing output and minimizing costs.
Diminishing returns is an economic concept that refers to a situation where the increase in the production of a good or service starts to decrease after a certain point. In other words, it is the point at which the additional input of a variable factor of production results in a less-than-proportional increase in output.
Explanation:
To understand why diminishing returns occur, let's break down the answer into the following sections:
1. Variable and Fixed Inputs: In the short run, a firm has both variable and fixed inputs. Variable inputs are those that can be easily changed in the short run, such as labor, while fixed inputs are those that cannot be changed, such as capital or machinery.
2. Total Product and Marginal Product: Total product refers to the total amount of output produced by a firm using a specific combination of inputs. Marginal product, on the other hand, refers to the additional output produced by using one more unit of a variable input while keeping other inputs constant.
3. Relationship between Marginal Product and Total Product: Initially, as more units of a variable input are added to a fixed input, the total product increases at an increasing rate. This is known as the law of increasing returns. However, after a certain point, the total product starts to increase at a decreasing rate. This is where diminishing returns come into play.
4. Diminishing Marginal Returns: Diminishing returns occur when the marginal product of a variable input starts to decline. In other words, each additional unit of the variable input leads to a smaller increase in output. This happens because the fixed input becomes a constraint on the production process. For example, if a firm has a fixed amount of machinery, adding more workers to operate the machinery may lead to overcrowding or inefficiency, resulting in a decrease in marginal product.
5. Illustration: Let's consider an example of a bakery. Initially, adding more bakers to the existing equipment may increase the total number of loaves of bread produced. However, at some point, adding more bakers may lead to a crowded workspace, reducing the efficiency and resulting in a smaller increase in the total number of loaves produced. This is an example of diminishing marginal returns.
In conclusion, diminishing returns occur when the addition of units of a variable input to a fixed input leads to a decrease in the marginal product. This is a crucial concept in economics as it helps firms understand the optimal level of input usage for maximizing output and minimizing costs.
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Diminishing returns occur :a)when units of a variable input are added to a fixed input and total product falls.b)when units of a variable input are added to a fixed input and marginal product falls.c)when the size of the plant is increased in the long run.d)when the quantity of the fixed input is increased and returns to the variable input falls.Correct answer is option 'B'. Can you explain this answer?
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