Law of Diminishing returns

Question 1

Short run

Answer 1

A period of time where there is at least one fixed factor of production being observed/held constant(normally capital and land)

Question 2

Law of Diminishing Returns

Answer 2

In the short run, when variable factors of production (Labour) are added to a stock of fixed factors of production, total/marginal product will initially rise and fall

Question 3

Marginal product=

Answer 3

Change in total product/Change in quantity of Labour employed

Question 4

Average product=

Answer 4

Total product/Quantity of labour

Question 5

When will total product produced be maximised?

Answer 5

When marginal product is 0

Question 6

Labour productivity increasing factors:

Answer 6

1. Specialisation(of workers for different roles)
2. Under-utilising of fixed factors of production(space for workers/resources for output)

Question 7

Labour productivity decreasing(factors)

Answer 7

Fixed factors of production are a constraint on production(fixed capacity can only help a certain few workers)

Question 8

Total cost=

Answer 8

Fixed cost of business + variable cost

Question 9

Average cost=

Answer 9

Total cost/quantity of output produced or Average Fixed Cost + Average Variable Cost

Question 10

Marginal cost=

Answer 10

Change in total cost/change in quantity

Question 11

How can production be altered

Answer 11

By changing variable inputs e.g. Labour, raw materials and energy

Question 12

Return on land

Answer 12

Rent

Question 13

Return on labour

Answer 13

Wages

Question 14

Return on capital

Answer 14

Profit

Question 15

Return on enterprise

Answer 15

Profit/dividends/interest

Question 16

Dividends

Answer 16

Profits on investment

Question 17

When do you get back interest?

Answer 17

When you save money in a bank

Question 18

Productivity of labour =

Answer 18

Output/Number of workers

Question 19

Why would UK productivity lag behind US/Chinese productivity

Answer 19

The Chinese are being worked to the ground
The US work their workforce to the ground
The US use more technology

Question 20

Average product

Answer 20

Measures output per worker employed or output per unit of capital

Question 21

Marginal product

Answer 21

Change in output from increasing the number of workers used by one

Question 22

Short run law of diminishing returns

Answer 22

As more units of a variable input are added to fixed amounts of land and capital, the change in total output will at first rise and then fall

Question 23

Example of diminishing returns to marginal product of labour

Answer 23

tWhen diminishing returns set in, the marginal product of labour starts to fall. When the marginal product of labour declines below existing average product, then the average product of labour will fall

Question 24

What happens as more of a variable factor is added to a fixed factor(diminishing returns)?

Answer 24

As more of a variable factor(e.g. labour) is added to a fixed factor(e.g. capital), a form will reach a point where it has a disproportionate quantity of labour to capital and so the marginal product of labour will fall, thus raising the marginal cost of getting a product to market. The average product will also fall, causing average variable cost to rise