| What is Marginal Product? | -When one Factor of Production (Usually Labour) increases, and the others are Fixed, the Extra Output is Marginal Product (with Labour it is Marginal Product of Labour |
| Why does the Law of Diminishing Returns occur? | -As you add more of a Factor of Production (labour) Marginal Product will start in the Beginning. Each Labour —> More Output than one before
-Happens perhaps due to Specialisation - more Labour is employed = more tasks can be done
-But, as you keep adding more Labour, the other Fixed Factors of Production (capital) will limit the extra output that’s Gained: MP Falls.
-When that happens (MP beginning to Fall) that is the Point of Diminishing Returns. |
| What Relationship does Marginal Returns have with Marginal Costs? | -When Marginal Returns (or Marginal Product) rises, Marginal Costs fall. The Opposite is True.
-MC will rise when MR falls, because if there is Less Extra Output from each Unit of Input, then the Cost per Unit of that Output will be Greater. |
