Answer to Question #183809 in Macroeconomics for Oritonda

Question

Explain the relationship between the law of diminishing returns and the three stages of production by means of a graph showing total, marginal and average products. (10)

Answer 1

As more and more units of a variable input are used on a given quantity of fixed inputs, the total production which initially increase at an increasing rate, then at a constant rate, but it will eventually increase at diminishing rates, according to the law of diminishing returns.

As a result, at a given quantity of fixed inputs, the total output initially increases with an increase in variable input, but after a period of time, it begins to decrease.

According to F. Ben ham, “As the proportion of one factor in a combination of factors is increased, after a point, first the marginal and then the average product of that factor will diminish.               Stage I:

Refers to the stages of development where total output rises in tandem with the number of employees. Table 3 indicates the rise in marginal product before the number of workers reaches 10 and 11. The marginal production of the tenth and eleventh workers is the same, implying that they deliver the same return.                       

                              Stage II:

This is the point at which total production rises but marginal product begins to fall as the number of employees rises. Stage 2 of the graph depicts the marginal output decreasing as the number of jobs approaches 12.

                        Step III:

The phases in which the overall product begins to decline as the number of employees increases. At the twentieth job, the total production reaches its peak. Following that, the overall production begins to decline..