theme 3 -law of diminishing returns Flashcards
state the law of diminishing returns
this is a short term law that states if a firm continues to add successive labor units while a factor of production is fixed then marginal utility will fall.
state the factors of production
land, labour, capital and enterprise
define the short run
this is a period of time for which the factors of production are fixed
what is marginal product
this is the additional output of a firm from the addition of one more worker
as a general rule why does the second worker add more to the output than the first worker
this is due to specialization. the second worker means that each worker can focus on one or only a few jobs.
what is specialization
this is when a worker can focus on one specific task. the worker becomes very skilled at this task and can do it very efficiently.
why does the marginal output per worker begin to fall.
this is because despite the extra people there is limited capital. this leads to less output per worker
why does the output eventually begin to fall when an additional worker is added
at this point MP < 0
this is because the amount of workers begins to directly inhibit the worker of others. this can be due to over crowding or queues at the capital.
what determines the number of workers employed
the employment of workers is determined by the potential marginal out put of the worker
what did malthus predict would occur due to the rapid population.
why did he think this
that the population would naturally cap itself due to a lack of natural resources.
he saw the land as a fixed input, so he believed that we would reach a point where the land would not be able to produce the necessary amount of food required by humans.
why hasn’t Malthus’s theory come true yet
he couldn’t predict the huge leaps in technology that has lead to advanced intensive farming.
this doesn’t prove him wrong though as him theory states that if population growth is greater than that of food production the the population will be capped.
what are fixed costs
these are costs that the business has to pay that don’t vary with the out put of the company
what are variable costs
these are costs the business has to pay that is directly proportional to the output of the company
what are semi variable costs
give an example
these are costs that vary with the output of the company but aren’t directly proportional. eg - electricity and oil costs
give examples of fixed costs
the lease / rent of the property
the salary
the insurance
