Diminishing Returns

Question 1

Define diminishing returns

Answer 1

Diminishing returns occur as more of a variable factor of production is added to a fixed factor of production which leads to a decreasing rate of production

Or increases in a variable factor of production leads to smaller increases in output due to a fixed factor

Question 2

Define the short run

Answer 2

This is when at least one factor of production is fixed: some factors haven’t adjusted to a change

Question 3

Define the long run

Answer 3

This means there are no fixed factors of production: every factor that will adjust has adjusted

Question 4

Define short run in production

Answer 4

This means that at least one factor of production has not and can not change

Question 5

Which two factors of production are most likely to be fixed?

Answer 5

Land and capital

Question 6

What does homogenous labour mean?

Answer 6

Each worker has the same productivity

Question 7

How do we work out average product of labour?

Answer 7

Total product/ quantity of labour

Question 8

How do we work out total product of labour?

Answer 8

Average product x quantity of labour

Question 9

How do we work out marginal product of labour?

Answer 9

Change in total product/ change in quantity of labour

Question 10

What is the division of labour?

Answer 10

When the production process is divided into different stages which enables workers to focus on specific tasks which increases efficiency

Question 11

What is specialisation?

Answer 11

When a worker only performs one task or a narrow range of tasks to become more efficient

Question 12

Why are 2 homogenous workers better than 1 homogenous worker?

Answer 12

Due to specialisation and the division of labour

Question 13

When can specialisation and the division of labour no longer be used?

Answer 13

When there is insufficient capital to be utilised by each additional worker

Question 14

Will workers past the amount of sufficient fixed factors of production still be productive?

Answer 14

Yes they will be productive as they can cover breaks or illnesses etc, but they will be less productive than the previous worker as there is a lack of the fixed factor (e.g. capital)

Question 15

When will diminishing returns set in/ when will marginal product begin to fall?

Answer 15

When there is a lack of capital or land (fixed factor of production), each workers contribution to total product is falling

Question 16

When is total product maximised?

Answer 16

When marginal product = 0

If marginal product is positive then employing another worker will add to total product, the opposite is true if it’s negative