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LAW OF DIMINISHING RETURNS

LAW OF DIMINISHING RETURNS. What is the Purpose?. The Purpose of the Law of Diminishing Returns is to measure how efficient a business is making a product, not necessarily how much of the product they make? Is there a difference between output and efficiency?. Hypothetically????.

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LAW OF DIMINISHING RETURNS

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  1. LAW OF DIMINISHING RETURNS

  2. What is the Purpose? • The Purpose of the Law of Diminishing Returns is to measure how efficient a business is making a product, not necessarily how much of the product they make? • Is there a difference between output and efficiency?

  3. Hypothetically???? • If I assigned you the task of creating a booklet of information and gave you the following instructions…how many people would be needed to EFFICIENTLY complete the task? • You are to take two pieces of paper, each with printed information about the C&E Course, sort them into piles, staple them together and then stack them in a pile.

  4. Law of Diminishing Return • Level of production in which the marginal product of labor decreases as the number of workersincrease

  5. Marginal Product of Labor - The "marginal product" of labor (MPL) is defined as the change in total product from expanding labor input by one unit while holding capital constant. • The "law of diminishing returns" states that adding additional amounts of labor to a fixed amount of capital will eventually reduce labor’s marginal product.

  6. Locate these points on the chart • Efficiency • Underutilization • Maximization of output

  7. Example

  8. Fixed Costs • Do not change regardless of how many goods are produced • Fixed interest rate • Variable Costs • Costs that vary when the amount of products that are produced change • Variable interest rates • Total Costs • Add the variable and fixed together

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