2. The Law of DMP1 The Law of Diminishing Marginal Returns

3. The Law of DMP2 Its employment ________ as output increases. Its employment _______________ when output increases. Fixed factor and variable factors Fixed factors factory buildings, land, capital tools and entrepreneurial skills increases raw materials, labour, fuel and electricity remains constant Examples Variable factors Definition

4. The Law of DMP3 A firm can expand output by employing more ______________ only. Short run and long run A period when there are both ___________ and _____________. fixed factors variable factors Short runLong run A period when all factors are ________. variable A firm can expand output by increasing the use of __________. all factors

5. The Law of DMP4 Assume there are two factors only: capital (fixed) and labour (variable). Technology is constant. Input-output relationship in the short run 4 10 20 28 34 38 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour The total product of labour is the total output produced by ______ in a _________________, holding __________________ constant. given period of time labour capital and technology TP ________ initially and ________ eventually with increasing amount of workers. increases decreases 4 10 20 28 34 38 40 39 37

6. The Law of DMP5 Input-output relationship in the short run 4 10 20 28 34 38 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour Average product (AP) is total product divided by the ________________. number of workers Average product (units) 4.00 5.00 6.60 7.00 6.80 6.34 5.72 5.00 4.34 3.70 AP ________ initially but ________ eventually. increases decreases 4.00 5.00 6.60 7.00 6.80 6.34 5.72 5.00 4.34 3.70

7. The Law of DMP6 Input-output relationship in the short run 4 10 20 28 34 38 40 39 37 1 2 3 4 5 6 7 8 9 10 Total product (units) Labour Marginal product (MP) is the change in total product as a result of _______________. Marginal product (units) MP of nth unit =_______________ _______________ TP of n units - TP of (n-1) units MP ________ initially but ________ eventually. increases decreases a change in input 4 6 10 8 6 4 2 0 -2 4 6 10 8 6 4 2 0 -2

8. The Law of DMP7 Law of diminishing marginal returns As more and more _____________ are added to a given quantity of fixed factors, holding __________ constant, marginal product eventually _____. variable factors technology drops OutputVariable factor MP

9. The Law of DMP8 Why do diminishing marginal returns occur ? When more workers are added to a given amount of fixed factors, the fixed factors are ________________ ; so MP rises initially. more fully utilised Later, when more and more workers are added, there are eventually too many _______ relative to the amount of fixed factors. workers

10. The Law of DMP9 Why do diminishing marginal returns occur ? When more workers are added to a given amount of fixed factors, the fixed factors are ________________ ; so MP rises initially. more fully utilised Efficiency will ______, leading to ______________. declinediminishing MP

11. The Law of DMP10 Quiz One Can you classify these items in the boutique into fixed and variable factors: (1) the shop; (2) the salespersons and (3) electricity?

12. The Law of DMP11 Quiz One The shop: _____________ as the size of it remains unchanged even if more clothes are sold. fixed factor The salespersons: ______________ as more of them are needed to persuade customers to buy more. variable factor Electricity: ______________ as more electricity is used along with longer business hours. variable factor

13. The Law of DMP12 Quiz Two Find the total product and average product schedule of our workers from the following data: MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7

14. The Law of DMP13 Quiz Two MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 The total product of n units = _________________________________________ _________________________________________ MP of the 1 st unit + MP of the 2 nd unit + … + MP of the nth unit TP 4086136180216242256

15. The Law of DMP14 Quiz Two MP 40 46 50 44 36 26 14 Units of labour 1 2 3 4 5 6 7 The average product of n units = _______________________ TP 4086136180216242256 AP = TP / units of labour AP 404345.44543.240.336.6

16. The Law of DMP15 Quiz Three The following table shows the marginal product schedule of factory A: Which law in economics is violated by the above data? Explain. MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 ______________________________________ is violated as the MP eventually increases. The law of diminishing marginal returns

17. The Law of DMP16 Quiz Three The following table shows the marginal product schedule of factory A: MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 Find the TP schedule for factory A. TP 2035456386121164

18. The Law of DMP17 Quiz Three The following table shows the marginal product schedule of factory A: MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 TP 2035456386121164 Can factory A alone satisfy the demand from the whole world? The marginal product increases after the _____ unit of labour. third

19. The Law of DMP18 Quiz Three The following table shows the marginal product schedule of factory A: MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 TP 2035456386121164 When the amount of labour increases after the third unit, TP will continue to ________ as the quantity of labour increases. increase

20. The Law of DMP19 Quiz Three The following table shows the marginal product schedule of factory A: MP 20 15 10 18 23 35 43 Units of labour 1 2 3 4 5 6 7 TP 2035456386121164 Therefore, the factory can produce _______________ _________ output by continuously increasing the quantity of labour, thus satisfying the demand from the whole world. infinitely larger amount of

21. The Law of DMP20 END