ECON 101 2Midtermreview

A change in demand an increase in demand bring a

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Unformatted text preview: r, the marginal product of labour increases and the firm experiences increasing marginal returns. Diminishing Marginal Returns Eventually When the marginal product of a worker is less than the marginal product of the previous worker, the marginal product of labour decreases. The firm experiences diminishing marginal returns. Increasing marginal returns arise from increased specialization and division of labour. Diminishing marginal returns arises 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 margin...
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