Law of Diminishing marginal returns & Utility

Question 1

Explain Law of Diminishing marginal utility

Answer 1

Based on the idea that consumers want to maximise utility, which is the satisfaction obtain from consuming a product. The theory states that For every additional good consumed, marginal (additional ) utility received decreases For example (…)

This underlines the law of demand as it shows a consumer will be willing to buy an additional unit of a good only if price falls

Question 2

Explain law of Diminishing marginal returns

Answer 2

Based on the relationship between production and cost of production. Theory states that as variable inputs increase (seeds, labour) marginal product or the additional output by an extra unit of variable input increases marginal cost decreases. When marginal product increases and reaches its peak, there is full employment of resources and marginal cost is at its minium. However, marginal product will then begin to decrease continuous as the overproduction of output leads to inefficiency and causes marginal cost to increase.

Example(..on a farm, worker extra workers are added periodically and the total output is at its peak (each worker is efficiently) as more additional workers are added to the land (fixed input) it. Eventually becomes overcrowded, causing a drop in extra output until it becomes non existent..)