Revenue, Costs, Profits

Question 1

Explain diminishing marital productivity

Answer 1

Each additional worker brought one more unit of output (specialisation of labour)
—> until going beyond optimum amount = decreased productivity
(Fixed constraints)

Maximise utilisation of labour + capital adding workers
Initial marginal gains before prod drops
THEN
get in each other’s way = diminishing returns (marginal loss)

Question 2

MES

Answer 2

Output at which firm’s LR AC curve stops falling
Internal EOS are exploited

Question 3

Difference between internal and external economies of scale

Answer 3

External = as whole industry grows larger, firms in industry benefit from lower LR AC - entire industry grows

Internal = firms individually benefit from EOS