Answer to Question #228423 in Microeconomics for Dam

Question

What is the law of diminishing marginal product?(3 marks)

a. In which stages of production it manifest.

b. What is the logical justification for the law of diminishing marginal

Answer 1

Solution:

The law of diminishing marginal product is an economic concept which states that when an advantage is gained in a production factor, the marginal productivity will typically diminish as production increases. Therefore, the cost advantage will usually diminish for each additional unit of output produced or will diminish marginally with the increase in production levels.

 

a.). The law of diminishing marginal product manifest at stage two of production. This is the stage where marginal returns start to decrease. At this stage, each additional variable input will still produce additional units but at a decreasing rate because of the law of diminishing returns. The output will steadily decrease on each additional unit of variable input ceteris paribus.

 

b.). The logical justification for the law of diminishing is that all else equal, as consumption increases, the marginal utility derived from each additional unit declines. Marginal utility is derived as the change in utility as an additional unit is consumed, therefore, the marginal cost curve will slope upward as the number of units of output increases.