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ECO365 Week 2 Prof Comments

ECO365 Week 2 Prof Comments - ECO365 Week 2 Professor...

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ECO365 Week 2 Professor Comments This additional lecture will cover the most important concepts to take away from week 2. These concepts are: diminishing marginal productivity, technical and economic efficiency, economies and diseconomies of scale, demand and supply of labor, and income redistribution. First the law of diminishing marginal productivity. Diminishing marginal productivity occurs when adding more production inputs (ie labor) to a fixed input (ie capital) results in slower output growth. Initially, as inputs are added to the production process, output increases and exhibits increasing marginal productivity. However, at some point the increase in output will slow and eventually decline (ie negative marginal productivity). For example, as more labor is added to a fixed amount of capital output will increase. But at some point adding more labor will not achieve constant output growth because too much labor (with a fixed amount of capital) becomes unproductive. This concept can be seen by looking at the shape of the production function (ie begins to flatten out).
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