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4. (a) State the Law of Diminishing Marginal Returns - Leaving Cert Economics - Question 4 - 2018
Question 4
4. (a) State the Law of Diminishing Marginal Returns. The law of diminishing marginal returns states: If increasing quantities of a variable factor of production ar... show full transcript
Worked Solution & Example Answer:4. (a) State the Law of Diminishing Marginal Returns - Leaving Cert Economics - Question 4 - 2018
Step 1
State the Law of Diminishing Marginal Returns.
Answer
The Law of Diminishing Marginal Returns states that when increasing amounts of a variable factor of production (such as labor) are added to a fixed factor of production (such as machinery), there comes a point where the additional output gained from each additional unit of the variable factor begins to decline. In other words, after a certain level of input, the incremental gains in output will decrease.
Step 2
Does this law apply in the short run or in the long run? Explain your answer.
Answer
This law applies in the short run only. In the short run, at least one input in the production process remains fixed, which allows for the diminishing returns to occur. In contrast, in the long run, all inputs can be varied, thus allowing for adjustments that can mitigate the effects of diminishing marginal returns.