Unformatted text preview: etc. The chief cause, however, is the degree of utilization of fixed inputs. These lumpy fixed inputs possess optimum capacity of production. For instance, a printing press may turn out 5000 pages of books per day or a manager may supervise 800 workers. So long as this capacity is under utilized the output will increase at an increasing rate. Once the capacity is fully or optimally utilized the output will increase at a constant rate. When the capacity is utilized beyond optimum level output starts increasing at a diminishing rate. Thus the three phases of the production function are closely associated with under utilization , optimum utilization and over utilization of the fixed factors of production....
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- Fall '10
- Economics, external economies, constant rate, continuously diminishing rate, lumpy fixed inputs