What does the law of diminishing returns imply for the shape of the marginal cost curve?
What will be an ideal response?
The law of diminishing returns states: As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes. The law of diminishing returns means that each additional worker produces a successively smaller addition to output. So to get an additional unit of output, ever more workers are required. The cost of an additional unit of output—marginal cost—is increasing, so the marginal cost curve eventually slopes upward.
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The above figure shows the AE curve and 45° line for an economy
a. If real GDP equals $10 trillion, how do firms' inventories compare to their planned inventories? b. If real GDP equals $20 trillion, how do firms' inventories compare to their planned inventories? c. What is the equilibrium level of expenditure? Why is this amount the equilibrium?
If an 8 percent decrease in the price of lobster leads to a 15 percent decrease in the quantity of lobster supplied, then the supply of lobster is
A) unitarily elastic. B) elastic. C) unit elastic. D) perfectly inelastic.