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A firm chooses its output level, QS, through the choice of inputs.The relationship between inputs and outputs is determined by the production technology used by the firm, but the general relationship assumed to be positive. That is, as you increase the level of inputs (like labor and materials), output will increase.

But it is also generally assumed that there are diminishing returns to any input. Why are there diminishing returns to any input?

What is the explanation for this phenomenon?

Please give me an example that demonstrates the principle of diminishing returns of inputs.

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Lelia LubowitzLv2

23 Sep 2018

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Related questions

A firm chooses its output level, Q_S, through the choice of inputs. The relationship between inputs and outputs is determined by the production technology used by the firm, but the general relationship assumed to be positive. That is, as you increase the level of inputs (like labor and materials), the output will increase.

But it is also generally assumed that there are diminishing returns to any input.

Why is this?

What is the explanation for this phenomenon?

Please give me an example that demonstrates the principle of diminishing returns of inputs.

goldgnu396

A price taking firm chooses its inputs to maximize short-run profits. Its Cobb-Douglass production function has the following form: q(L, K) = L^(1/2) K ^(1/3) . The output price is 1,000 per unit and the cost of each unit of input is 10. In the short-run, capital is fixed at 27 units.

(a) Set up the profit function in terms of labor only.

(b) Find the optimal choice of labor, L â .

Another price taking firm chooses its inputs to maximize long-run profits. Labor and capital are substitutes in production and both exhibit decreasing returns to scale, q(L, K) = L^(1/2) + K^(1/2) . The output price is 100 and the price of each of the inputs is 10.

(a) Set up the firmâs profit function and provide the two conditions for profit maximization.

(b) Find the profit maximizing levels of capital and labor.

rosearmadillo753

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

The marginal product of labor is the increase in output resulting from a one-unit increase in the amount of labor employed. In my own opinion, the statement can be true in the sense that, as the firm produces more and more the cost of production has to come down first; that becomes constant or minimum and then starts to increase. The marginal cost is also a U-shaped curve that first falls then reaches a minimum and starts rising. The reason for rising marginal costs in the short term will only be an increase in the wages as the only factor which is variable in the short-run is labor whereas all factors are kept fixed, so the fixed costs will keep coming down. If you increase labor, you are going to suffer from diminishing marginal returns. And in the long-run, one will suffer diminishing returns from both input factors, labor, and capital.

The short-run cost relationship between the marginal product of labor and the marginal cost, the labor is variable. We have already established that there are diminishing marginal returns because the labor decreases. To increase output in the short-run, a firm must increase the amount used of a variable input. The marginal product reduces, not because consecutive workers are lesser, but because more workers are being used relative to the amount of equipment that is available, what they have left to work with. An example; if a clinic has only one dentist on duty and several assistants are available and we have a lot of patients waiting to see that doctor, the number of patients served by this office cannot increase without limit. The excess assistants will not be able to increase the number of patients in the office, not because they are not reliable or good enough, but because they cannot perform the doctor's job, and there is only one doctor in the office.

https://www.quora.com/Why-does-the-marginal-cost-curve-slope-upwards

I need a peer reply for this.