Law of Diminishing Returns

What is the short run defined as in the context of fixed resources?

• A period of time in which all resources are variable.

• A period of time in which there is at least one fixed resource.

• A period of time long enough for all resources to become variable.

• A period of time in which a firm can alter its floor space in the factory.

Answer explanation

The short run is defined as a period of time in which there is at least one fixed resource, while other resources may be variable.

What is considered a 'fixed resource' in the short run?

• Labour

• A factory's floor space

• The quantity of hours workers work

• The total production of cakes

Answer explanation

A factory's floor space is considered a 'fixed resource' in the short run because it cannot be easily changed or varied to adjust production levels.

What does the 'Law of Diminishing Returns' state about variable resources?

• The marginal product obtained from the additional variable resources will increase indefinitely.

• The marginal product obtained from the additional variable resources will remain constant.

• The marginal product obtained from the additional variable resources will begin to decline after some point.

• The marginal product obtained from the additional variable resources is not related to the quantity of resources.

Answer explanation

The 'Law of Diminishing Returns' states that the marginal product obtained from the additional variable resources will begin to decline after some point.

How is 'long run' defined in terms of resource variability?

• A period of time in which there is at least one fixed resource.

• A period of time in which all resources are fixed.

• A period of time long enough for all resources to become variable.

• A period of time in which a firm can't alter its floor space in the factory.

Answer explanation

A period of time long enough for all resources to become variable.

What is the marginal product of the 3rd worker according

to the table provided?

• A) 2 cakes

• B) 3 cakes

• C) 5 cakes

• D) 6 cakes

Answer explanation

The marginal product of the 3rd worker is calculated by finding the difference in total output between 2nd and 3rd worker, which is 5 cakes (25-20=5). Therefore, the correct answer is C) 5 cakes.

At what point does diminishing returns set in, as per the cake baking example?

• A) After the 3rd worker

• B) After the 4th worker

• C) After the 5th worker

• D) After the 6th worker

Answer explanation

Diminishing returns set in after the 4th worker in the cake baking example, as adding more workers beyond this point does not significantly increase productivity.

What is the marginal product of the 7th worker?

• 0 cakes

• 1 cake

• 2 cakes

• 3 cakes

Answer explanation

The marginal product of the 7th worker is 0 cakes because the marginal product is the additional output gained by adding one more unit of input, and in this case, the 7th worker did not produce any additional cakes.

What is generally assumed to increase initially as the team of workers grows due to division of labour and specialisation?

• A) Total product

• B) Marginal product

• C) The number of workers

• D) The time taken to produce the product

Answer explanation

As the team of workers grows, division of labour and specialisation lead to an increase in Marginal product initially.

What does the marginal product curve represent?

• A) The relationship between the quantity of labour and the total product

• B) The relationship between the quantity of labour and the marginal product of the worker

• C) The relationship between the total product and the time taken to produce it

• D) The relationship between the number of workers and their individual productivity

Answer explanation

The marginal product curve represents the relationship between the quantity of labour and the marginal product of the worker, making option B the correct choice.