ECON 1001 Lecture Notes - Lecture 7: Diminishing Returns, Marginal Cost
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Ans: when only a variable input is increased, and all other inputs are held constant the resultant increase in output is called returns to a factor. Indivisibility of factors: factors of production are indivisible. The minimum size of the fixed factor may be greater than its actual utilization in the initial stage. With increased employment of the variable factor the fixed factor starts getting utilized efficiently. Effective and efficient utilization of the fixed factor leads to increase in total output at an increasing rate. Law of increasing return will operate so far the optimum combination is not reached. Specialization: the second reason is that with larger scale we can introduce more division of labor or specialization. A greater degree of division of labor raises productivity of the labor and other factors. Fuller utilization of the fixed factors: in the initial stages fixed factor such as machine remains underutilized. Its fuller utilization calls for greater application of the variable factor.
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The law of eventually diminishing marginal returns: (Points : 1)
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y d. None of the above |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
b. the average product of labor (L) is equal to ?2 c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent d. a and b e. a and c |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above