Answer to Question #120639 in Economics for roges

Question

An entrepreneur starts a small firm with one machine, and a small factory space and employs one person initially. With the aid of appropriate diagrams/table and theory, explain the process of production as he increases his output. Indicate clearly what law governs this process of production, the variable and the fixed factors used by this entrepreneur.

Answer 1

As he increases his output, he needs to increse the use of inputs. At some moment the law of diminishing returns will occur, as a result the average cost per unit will increase.