Firms and production - Law of Diminishing Returns
3 important questions on Firms and production - Law of Diminishing Returns
What does the law of diminishing returns state?
- As input increases, while others are constant, output increases become smaller.
- Eventually, increases may even become negative.
- Relates to diminishing marginal returns to labor.
Describe the behavior of the Total Product of Labor (TPL) and Marginal Product of Labor (MPL) as labor increases.
- TPL increases up to labor equal to 20.
- MPL increases up to labor equal to 10.
- Beyond labor equal to 10, MPL decreases, leading to reduced efficiency.
Why does the Marginal Product of Labor decrease after reaching a certain level of labor?
- Growing labor force reduces the amount of capital per worker.
- Less capital leads to decreased efficiency.
- Overcrowding reduces job efficiency further.
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