Author Question: What is the law of diminishing marginal product? What causes it?[br][br][b][color=#FA1639]Question ... (Read 62 times)

xclash · **on:** Jun 30, 2018

What is the law of diminishing marginal product? What causes it?

Question 2

In the market for land as a resource, the demand curve is elastic while the supply curve is perfectly inelastic. Identify the underlying assumption.
a. There are limited ways in which land can be used as a resource.
b. Land as an input has large number of substitutes.
c. There is a fixed supply of land.
d. Land includes all immovable assets.
e. The productivity of land improves over time.

otokexnaru · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The law of diminishing marginal product states that as the amount of a variable input is increased, while the quantity of other fixed inputs are held constant, a point will ultimately be reached beyond which marginal product will decline. We expect an initial rise in marginal product because of gains from specialization. However, these benefits will eventually be exhausted at some larger output level. In addition, the size of the operation expands with more and more units of one resource being used, we will see a bottleneck effect where workers (or other resources) essentially get in each others' way.

Answer to Question 2

c