ECON 4130 Lecture 18: Law of Diminishing Return

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Lawofdiminishiyretuuy. am the marginalproductivity of a factor must eventually fall as that factor is added after somepoint realaggregate output must increase at a decreasing rate unlessotherwise noted we will always assume this applies a. T f fu i given the law of diminishingreturns. Ld mp f real outputincreases in labor inputs at a de rate why fallingland latatio as labor increases holding all elseequal decliningfactorquality highest qualityfactor used first subsequentfactorsadded in orderofquality cheelive. Marginertproductivitys gives us themarginal contribution of each worker hired thesum all mps totofpreft off area under the mpschedule. Factorsuppliesandmarginproductivity i suppose we increase the amount of land in theeconomy holding labor constant x i f ii. Themarginedworker hey more land to work with moreproductive. Y n i suppose 1and tfrom iitiiiiiios. aneiieitm. tnemarr. nu productof eachworkerrites. L margiheurevenue. pro tofabor cm rp g the additional revenue an additional workerbringsin totalrevenue priceinoutput. In a perfectly competitivelabormarket thewage ratecw is w mrp pxmr.

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