a) Define Marginal Product; what is the logical meaning of 'Diminishing Marginal Returns' to a single...

a) Define Marginal Product; what is the logical meaning of 'Diminishing Marginal Returns' to a single variable factor of production ? b) What is the behaviour of Marginal product (MP) of a factor of production when Average Product (AP) is decreasing with the level of production ?

Solutions

Expert Solution

a) The extra output generated by using an additional unit of an input is known as the marginal product of that unit of input.

As more and more units of variable factors are used in conjunction with fixed Factor (the input whose Quantity remains fixed) to Increase Output, the extra Output generated by Employing each additional unit of the variable factor is Decreases. The logical reason for that is that increase of variable factors against fixed factors main lead to a unnecessary congestion in Producing the output. For example if the size of the building that is a fixed Factor remains same and more and more labour is hired to increase output it will lead to congestion and crowd in the production area. This will lead to diminishing marginal product.

b) when the average product is decreasing with the level of production it means that the marginal product is also decreasing and the marginal product is below the average product. The reason for this is that average product will decrease with the the level of production when the marginal product will decrease because the marginal product will bring down the average product with the level of production.

Rahul Sunny answered 1 month ago

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