law of diminishing marginal return para

Question 1

LODMR PARA short run

Answer 1

• short run is the time period in which at least one factor of production is fixed in quantity
• for example, a firm may not be able to increase its capital or land in the short run
• diminishing marginal return describes how a decrease in marginal output of a production process where one additional factor of production increases
• adding one unit of labour will increase output by less then the previous unit
• for example, if the 5th worker in a production line brings a total output to 100 units, the 6th worker brings total output, 110 on the 7th worker brings total output, 115 units then diminishing returns has occurred
• as marginal output for 7th worker has fallen to just 5 units

-this has the effect of increasing marginal cost, as shown at Q1 in the graph

• this will increase SRAC too