The law of diminishing returns and returns to scale Flashcards
when does diminishing marginal return occur, in the short run or long run?
in short run where only one factor of production is fixed
what is the process diminishing marginal returns or diminishing productivity
as output rises and more factors of production are employed Productivity will increase, because of specialisation = workers don’t have to switch between tasks and can master their tasks
- as we keep adding more and more factors of production, Productivity will decrease because there are fixed factors of production
define diminishing marginal returns or diminishing productivity
as more factors of production are employed the additional productivity/ marginal returns from these factors will eventually decrease/ diminish
define returns
Return is how much output is produced by the input
define total returns
total return is the total output produced by all its inputs
define average return
average return is the output produced by one input on the average.
state the formula for average return
AR = total output/ total input
define marginal return
the extra output produced by one extra input
what do returns to scale measure
measure how a firms output changes in response to a change in the firms inputs
define increasing returns to scale
when the percentage change in out out is greater than the percentage change in input
define constant returns to scale
when the percentage change in output is the same as the percentage change in input
define decreasing returns to scale
when the percentage change in output is less than the percentage change in input
describe how prices of a factors input affects a firms choice of factor inputs
- if wages are verylow compared to the high cost of machinery, firms might choose to have their goods and services built by workers (labour).
- Ifwagesare very highcompared to the low cost of machinery, firms may choose to have their goods and services built by machines (capital).
