What is the law of diminishing marginal product? What causes it?
The law of diminishing marginal product states that as the amount of a variable input is increased, while the quantity of other fixed inputs are held constant, a point will ultimately be reached beyond which marginal product will decline. We expect an initial rise in marginal product because of gains from specialization. However, these benefits will eventually be exhausted at some larger output level. In addition, the size of the operation expands with more and more units of one resource being used, we will see a bottleneck effect where workers (or other resources) essentially get in each others' way.
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Indicate whether the statement is true or false
Steak is a normal good. A decrease in the price of steak
a. causes the budget line to rotate inward b. makes the supply of steak more elastic c. decreases consumers' purchasing power d. makes consumers poorer e. increases consumers' purchasing power