ECON 1000 Study Guide - Final Guide: Diminishing Returns, Marginal Cost, Marginal Product
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ECON 1000 Full Course Notes
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Econ1000 lecture 14 chapter 11: output and costs objectives: To increase output in the short-run, a firm must increase the amount of labour employed. Three concepts describe the relationship between output and the quantity of labour employed: Marginal product = change in tp / change in l. Increasing marginal returns arise from increased specialization and division of labour. Diminishing marginal returns arise from the fact that employing additional units of labour means each worker has less access to capital and less space in which to work. Diminishing marginal returns are so pervasive that they are elevated to the status of a law. The law of diminishing returns states that as a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes. To produce more output in the short run, the firm must employ more labour, which means that it must increase its costs.