Module 7 Discussion: Diminishing Returns Only provide your opinions when specifi

Question

Module 7 Discussion: Diminishing Returns Only provide your opinions when specifically called for. In all other cases your answer(s) should rely on the text and module materials and not on the internet, showing your capacity to apply the appropriate economic principles and concepts correctly. All discussion assignments count 100 points. Evaluation of the discussion assignments will consider spelling and grammar, including punctuation and capitalization. Remember that initial discussion postings to this topic should be a minimum of 100 words. Do not post this as an attachment. What do economists mean by “diminishing returns” to an input? What causes diminishing returns? Have you ever observed this principle at work in a job you’ve had? Describe how you’ve experienced this concept in the real world.

Explanation / Answer

Law of diminishing returns explains that when more and more units of a variable input, like labor, is added to a given quantity of fixed inputs, which is capital, the total output may initially increase at increasing rate and then at a constant rate, but it will eventually increase at diminishing rates. Diminishing returns are caused by fall in productivity or the marginal product.

The first stage is marked by positive slope of the total product curve, AP is positive, MP initially increases then decreases and equals AP

The second stage is marked by decreasing slope of the total product curve, AP and MP are positive.

The third stage is characterized s by negative total product curve, MP is negative, AP istill positive.

Example:

When more and more research assistants are hired, which is a variable input, to a given quantity of fixed input, in this example it is the infrastructure like access to text books, study guides, class rooms, the marginal product of research assistants decline.

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