So with each additional donut "there is a diminishing return. By the time he eats his tenth donut, he won't be getting much pleasure out of it, in fact, he will start getting a stomach ache. Again, the third donut will still make him happy, but not as much as the second and first donut. The second donut will be good too, but it won't be as good as the first one. He said that when he eats a donut, he will experience a lot of contentment and pleasure from eating it. My instructor gave an interesting example to explain the law of diminishing returns. When marginal product is at a peak, marginal costs is at its lowest point. Marginal goes up and then down, whereas marginal cost goes down and then up. Remember, on a graph, marginal cost and marginal product look the opposite. Whereas in decreasing marginal returns, there is only a downward curve. Because in the law of diminishing returns, there is a downward and then an upward curve. if Mason produces both goods and Chloe produces nothing.Does the connection between marginal product and cost mean that a firm should aim for the most marginal production with the least marginal cost? Or is it enough if the marginal cost is less than revenue/price of that good?įebruary 10, That sounds more like decreasing marginal returns. The average product curve (AP) shows us the average output produced by each worker. The marginal product curve (MP) shows us the increase in output that arises from an additional unit of input hired. if each good is produced by the individual who has the higher absolute cost of producing that good if Chloe produces both goods and Mason produces nothing. sense to hire that worker, we need to know how output changes when one additional worker is hired. According to the principle of comparative advantage, the total output produced by these individuals will be greatest if each good is produced by the individual who has the lower opportunity cost of producing that good. Which country has the highest per capita health care expenditures in the world? Canada Japan United States France Mason and Chloe each produce two goods. on his corn crop d) An Alcoa aluminum plants add a third shift of workers. the marginal physical product curve for Labor divided by the price of the good. Solution for Q.3 Each extra worker produces an extra unit of output up to six. the marginal revenue product curve for labor. the marginal physical product curve for labor multiplied by the price of labor. The firms demand curve for labor is the demand curve for the good produced divided by the price of the good. more waiters have to be paid the prevailing wage rate. the supply of labor is perfectly elastic. when new workers are hired the wage, rate must be increased for all workers and not just for the additional workers. For a monopolies, marginal factor cost exceeds the wage rate since the labor demand is downward sloping. Which of the following will lead to an outward shift in the firm's short-run demand for labor? a decline in labor productivity less capital per unit of labor an increase in the prior of output a reduction in average consumer income All of the following are income in kind EXCEPT government provided housing. there would be little or no incentive for individuals to take risky, hazardous, or unpleasant jobs. productivity levels would probably become too high. too many individuals would want to take risky jobs. If income were distributed according to the egalitarian principle of "to each exactly the same, " then one problem would be that individuals would have an excess desire to invent in their own human capital. the extra cost from hiring the last worker equals the cost of the product. the additional cost at hiring the last worker equals the marginal factor cost of the worker. the extra revenue from hiring the last worker equals the marginal physical product of labor. Transcribed image text: A profit-maximizing firm will hire additional units of labor until the additional cost of hiring the last worker equals the additional revenue generated by that worker.
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