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Question #30 (a) What is the law of diminishing returns? Why is this proposition call a...

Question #30

(a) What is the law of diminishing returns? Why is this proposition call a “law”? b) What is the relationship between the marginal product and marginal cost? c) Explain how new technologies affect production cost structures. d)What are economies of scale, and what is the main source of economies of scale? e)What are diseconomies of scale and why might they occur?

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Answer #1

a. Law of diminishing return - This is second stage of production where total product increases at a decreasing rate and Marginal product starts decreasing. it is called law because it is always true.

b. Marginal product and marginal cost are inversely related. Wen Mp increases, MC decreases.

c. New technologies, reduces cost of production and increases factor productivity. Thus MP curve shifts upward while MC cure shifts downwards.

d. Economies of scale is the process of decrease in average cost of production with an increase in quantity of production. it occurs due to labor specialization and labor division.

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