Law of Diminishing Marginal Returns: As the number of new employees increase, the marginal product of each employee at some point be less than the marginal product of the previous employee.
Total Products-The total quantity of outputs produced by a firm for a given number of inputs.
Average Product-The quantity of total output produced per unit of a variable input, assuming that all other inputs are fixed. Total Product/Quantity
Marginal Product-The Change in the quantity of total product resulting from a unit change in a variable input.
Assumptions
Law of Diminishing Returns-
1. The time is too short for a firm to change the quantity of fixed factors.
2. It is assumed that the labor is the only factor. As the output increases, there is no change in the factor prices.
3. All units of of variable factors are equally efficient.
4. There are n changes in the techniques of production.
Total Products-
*There is a significant increase in total products produced with each addition of the first several products.
*There are diminishing returns after the next few additional workers and the increase in the total products will not be as high as before.
*There will be decreasing returns when too many workers are hired and the total products produced will decrease.
Average Product-
Marginal Product-
*Each additional labor will add a certain amount of products produced to the total products produced by the firm.
Definitions
Law of Diminishing Marginal Returns: As the number of new employees increase, the marginal product of each employee at some point be less than the marginal product of the previous employee.Total Products-The total quantity of outputs produced by a firm for a given number of inputs.
Average Product-The quantity of total output produced per unit of a variable input, assuming that all other inputs are fixed. Total Product/Quantity
Marginal Product-The Change in the quantity of total product resulting from a unit change in a variable input.
Assumptions
Law of Diminishing Returns-1. The time is too short for a firm to change the quantity of fixed factors.
2. It is assumed that the labor is the only factor. As the output increases, there is no change in the factor prices.
3. All units of of variable factors are equally efficient.
4. There are n changes in the techniques of production.
Total Products-
*There is a significant increase in total products produced with each addition of the first several products.
*There are diminishing returns after the next few additional workers and the increase in the total products will not be as high as before.
*There will be decreasing returns when too many workers are hired and the total products produced will decrease.
Average Product-
Marginal Product-
*Each additional labor will add a certain amount of products produced to the total products produced by the firm.
Graphs-
Total Products Curve
Examples:
Factory workers