CE Law of DMP

7/21/2019 CE Law of DMP

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The Law of DMP 1

The Law of Diminishing Marginal Returns



The Law of DMP 2

Its employment________ as outputincreases.

Its employment_______________ whenoutput increases.

Fixed factor and variable factors

Fixe factors

factory !uilings" lan"

capital tools an

entrepreneurial s#ills

increases

raw materials" la!our"

fuel an electricity

remains constant

$xamples

%aria!le factorsDefinition



The Law of DMP &

' firm can expan output

!y employing more

______________ only.

Short run and long run

' perio when there are !oth

___________ an

_____________.fixe factors

(aria!le factors

(aria!le factors

)hort run Long run

' perio when all factors

are________

.(aria!le

' firm can expan output !y increasing the use of

__________.all factors



The Law of DMP *

'ssume there are two factors only+ capital ,fixe- anla!our ,(aria!le-. Technology is constant.

Input-output relationship in the short run

410

20

28

34

3840

40

39

37

12

3

4

5

67

8

9

10

Total product

(units)Labour The total prouct of la!our is the

total output prouce !y ______ in a _________________" holing

__________________ constant.

gi(en perio of time la!our

capital an technology

TP ________ initially an________ e(entually with

increasing amount of wor#ers.

increasesecreases

410

20

28

34

3840

40

39

37



The Law of DMP


410

20

28

34

3840

40

39

37

12

3

4

5

67

8

9

10

Total product

(units)Labour

'(erage prouct ,'P- is total prouct i(ie !y the

________________.num!er of wor#ers

Average product

(units)

4.005.00

6.60

7.00

6.80

6.345.72

5.00

4.34

3.70

'P ________ initially !ut

________

e(entually.

increases

ecreases

4.005.00

6.60

7.00

6.80

6.345.72

5.00

4.34

3.70



The Law of DMP /


410

20

28

34

3840

40

39

37

12

3

4

5

67

8

9

10

Total product

(units)Labour

Marginal prouct ,MP- is the change in total prouct as a

result of 000000000000000.

arginal product

(units)MP of nth unit

=_______________

_______________

TP of n units

- TP of ,n1- units

MP ________

initially !ut

________ e(entually.

increases

ecreases

a change in input

46

!0

8

6

42

0

"!

"2

46

!0

8

6

42

0

"!

"2



The Law of DMP

Law of diminishing marginal returns

's more an more _____________ are ae to a gi(en3uantity of fixe factors" holing __________ constant"

marginal prouct e(entually _____.

(aria!le factorstechnology

rops

Output

Variable factor

MP



The Law of DMP 4

Why do diminishing marginal returns occur ?

5hen more wor#ers are ae to a gi(en amount of fixe

factors" the fixe factors are ________________6 so MPrises initially.

more fully utilise

Later" when more an more wor#ers are ae" there aree(entually too many _______ relati(e to the amount offixe factors.

wor#ers



The Law of DMP 7

Why do diminishing marginal returns occur ?

5hen more wor#ers are ae to a gi(en amount of fixe

factors" the fixe factors are ________________6 so MPrises initially.

more fully utilise

$fficiency will ______" leaing to ______________.ecline iminishing MP



The Law of DMP 18

Quiz One

Can you classify these items in theboutique into fixed and variablefactors: (1) the shop; (2) thesalespersons and (3) electricity



The Law of DMP 11

Quiz One

!he shop: _____________ as the si"e of it remains

unchan#ed even if more clothes are sold$

fixed factor

!he salespersons:______________ as moreof them are needed to

persuade customers tobuy more$

variable factor

%lectricity: ______________ as more electricity is usedalon# &ith lon#er businesshours$

variable factor



The Law of DMP 12

Quiz Two

'ind the total product and avera#eproduct schedule of our &orersfrom the follo&in# data:

MP 40 46 50 44 36 26 14

Units oflabour 1 2 3 4 5 6 7



The Law of DMP 1&

Quiz Two

MP 40 46 50 44 36 26 14


!he total product of n units _________________________________________

_________________________________________

*+ of the 1st unit , *+ of the 2nd unit ,

, *+ of the nth unit

!+ ./ 0 13 10/ 21 2.2 2



The Law of DMP 1*

Quiz Two

MP 40 46 50 44 36 26 14


!he avera#e product of n units _______________________

!+ ./ 0 13 10/ 21 2.2 2

+ !+ 4 units of labour

+ ./ .3 .$. . .3$2 ./$33$



The Law of DMP 1

Quiz Three

!he follo&in# table sho&s the mar#inalproduct schedule of factory :

5hich la& in economics is violated by the above data%xplain$

MP 20 15 10 18 23 35 43

Units of

labour 1 2 3 4 5 6 7

______________________________________ isviolated as the *+ eventually increases$!he la& of diminishin# mar#inal returns



The Law of DMP 1/

Quiz Three


MP 20 15 10 18 23 35 43

Units of

labour 1 2 3 4 5 6 7

'ind the !+ schedule for factory $

!+ 2/ 3 . 3 0 121 1.



The Law of DMP 1

Quiz Three


MP 20 15 10 18 23 35 43

Units of

labour 1 2 3 4 5 6 7

!+ 2/ 3 . 3 0 121 1.

Can factory alone satisfy the demand from the &hole&orld

!he mar#inal product increases after the 66666 unit oflabour$

third



The Law of DMP 14

Quiz Three


MP 20 15 10 18 23 35 43

Units of

labour 1 2 3 4 5 6 7

!+ 2/ 3 . 3 0 121 1.

5hen the amount of labour increases after the third unit7!+ &ill continue to ________ as the quantity of labourincreases$

increase



The Law of DMP 17

Quiz Three


MP 20 15 10 18 23 35 43

Units of

labour 1 2 3 4 5 6 7

!+ 2/ 3 . 3 0 121 1.

!herefore7 the factory can produce _______________ _________ output by continuously increasin# the quantityof labour7 thus satisfyin# the demand from the &hole

&orld$

infinitely lar#eramount of



The Law of DMP 28

$9D

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CE Law of DMP