Define the production function. Discuss why the production function exhibits diminishing returns
What will be an ideal response?
The production function is the relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same. The production function exhibits diminishing returns because the quantity of capital (and other resources) is fixed. As more labor is hired, the extra output produced decreases because the extra workers have less capital with which to work. As a result, the additional workers cannot produce as much additional output as did the previously hired workers.
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A negative externality causes a private market to produce which of the following quantities?
a) less than market equilibrium b) more than market equilibrium c) more than is socially desirable d) less than is socially desirable
Other things remaining the same, a left shift in the supply curve will lead to:
A) a decrease in the equilibrium price and the equilibrium quantity. B) an increase in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.