What is the law of diminishing returns? Use the following data to demonstrate the three stage production function :
Inputs of variable resource 1 2 3 4 5 6 7 8 9 Total Output 10 25 37 47 55 60 63 63 62
a. Calculate Average Product and Marginal Product. b. Using above information draw a two panel diagram to illustrate the stages of production. c. Which stage would represent optimum production?
The law of diminishing returns states that continuous increases of one input factor while holding the other input factors fixed will lead to a decrease in the per unit output of the variable input factor.
a.
L 1 2 3 4 5 6 7 8 9
Q 10 25 37 47 55 60 63 63 62
AP 10 12.5 12.33 11.75 11 10 9 7.88 6.89
MP - 15 12 10 8 5 3 0 -1.
b. The three stages are: increasing returns, diminishing returns and negative returns.
c. Increasing returns stage would represent optimum production.
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