Law of diminishing returns

Question 1

What is the law of diminishing returns ?

Answer 1

In the short run when variable factors of production are added to the stock of fixed factors of production , total and marginal product will initially rise and then fall

Question 2

What does the short run mean ?

Answer 2

There is at least one fixed factor of production

Question 3

Explain the 1st half of the law of diminishing returns diagram ?

Answer 3

As companies use more fixed factors of production , marginal product increases as FoP’s become less underutilised

Specialisation occurs

Question 4

Explain the 2nd half of the law of diminishing returns diagram ?

Answer 4

Fixed factors of production constrain production which eventually makes them less efficient and productive , resulting in a reduction in the marginal product and average profit falls as costs increase